##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION  FORM 10-KSB ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT 1934: For the Fiscal Year Ended December 31, 2002; and
For the Fiscal Year Ended December 31, 2003 Commission File Number: 0-30717 E-SMART TECHNOLOGIES, INC.  Nevada
    
    880409261(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
 7225 Bermuda Road, Suite C, Las Vegas, Nevada 89119
(Address of Principal executive Office, including Zip Code) (702) 447-5210
(Issuers Telephone Number) Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK, $.001 PAR VALUE
(Title of Class) Check whether Issues: (1) filed all reports required to be filed by Section 13
or 15 (d) of the Securities Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past
90 days.   Yes [   ]
No [X] Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [   ] Issuers revenues for the two years ended December 31, 2003: $ -0- The aggregate market value of Common Stock held by non-affiliates at March 23,
2004 was $36,951,558. Shares of Common Stock, $.001 par value per share,
outstanding at March 25, 2004: 170,707,012 shares DOCUMENTS INCORPORATED BY REFERENCE: No documents are incorporated by reference into this Annual Report. Transitional Small Business Disclosure Format (check one): Yes [   ] No [X]




---



TABLE OF CONTENTS PART IITEM 1. Description of BusinessITEM 2. Description of PropertyITEM 3. Legal ProceedingsITEM 4. Submission of Matters to a Vote of Security HoldersPART IIITEM 5. Market for the Registrants Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity SecuritiesITEM 6. Managements Discussion and Analysis or Plan of OperationsITEM 7. Financial StatementsITEM 8. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureITEM 8-A. Controls and ProceduresPART IIIITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange ActITEM 10. Executive CompensationITEM 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersITEM 12. Certain Relationships and Related TransactionsITEM 13. Exhibits and Reports on Form 8KITEM 14. Principal Accountant Fees and ServicesSIGNATURESCERTIFICATIONSExhibit 3.(i)Exhibit 3.(ii)Exhibit 10.AExhibit 10.BExhibit 10.CExhibit 10.DExhibit 10.EExhibit 10.FExhibit 10.GExhibit 10.HExhibit 10.IExhibit 10.JExhibit 10.KExhibit 10.LExhibit 31.1Exhibit 32.1Exhibit 99.1
  2




---



##### Table of Contents



Safe Harbor Statement Certain statements contained herein constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. We desire to avail ourselves of certain safe harbor provisions of
the 1995 Reform Act and are therefore including this special note to enable us
to do so. Forward-looking statements included in this Report on Form 10-KSB
involve known and unknown risks, uncertainties, and other factors which could
cause our actual results, performance (financial or operating) or achievements
to differ from our best estimate of future results, performance (financial or
operating) or achievements expressed or implied by such forward-looking
statements. These risks include, but are not limited to, risks related to
recently consummated acquisitions as well as future acquisitions, our ability
to increase our revenues and generate income from operations, effects of
competition and technological changes, risks related to exposure to personal
injury and workers compensation claims, risks that our insurers may not
provide adequate coverage, risks associated with compliance with government
regulations such as ERISA, state and local employment regulations and
dependence upon key personnel. We believe it is important to communicate our expectations to our
investors. There may be events in the future, however, that we are not able to
accurately predict or over which we have no control. The risk factors listed
above, as well as any cautionary language in this report, provide examples of
risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we described in our forward-looking
statements. Before any investment is made in our securities, awareness that the
occurrence of any of the events described in the risk factor
section and elsewhere in this report, and other events that we have not
predicted or assessed could have a material adverse effect on our ability to
transition out of the development stage. In such case, the price of our
securities could decline and any investor may lose all or part of the
investors investment. 3




---



##### Table of Contents



PART I 
 ITEM 1. DESCRIPTION OF BUSINESS General e-Smart Technologies, Inc., a Nevada corporation (the Company or the
Registrant), was incorporated on July 15, 1997, under the name Boppers
Holdings, Inc. (Boppers). On December 22, 2000, and by virtue of a
Certificate of Amendment to our Articles of Incorporation, our name was changed
to e-Smart Technologies, Inc. Prior to the change of name, and pursuant to an
Acquisition Agreement and Plan of Merger dated as of August 16, 2000, between
Boppers and Plainview Laboratories, Inc. (PLI), a Nevada corporation, all the
outstanding shares of common stock of PLI were exchanged for 20,000 shares of
Rule 144 restricted common stock of Boppers in a transaction in which Boppers
was the successor corporation. At the time of the merger with Boppers, PLI was
a publicly owned entity with a class of securities registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the Exchange
Act). We were organized under the laws of the State of Nevada on July 15, 1997,
we have limited operations, and, in accordance with SFAS#7, we are considered a
development stage company. Our administrative offices are located at 7225
Bermuda Road, Suite C, Las Vegas, Nevada 89119. Our registered agent in the
State of Nevada is The Corporation Service Company and our transfer agent is
Holladay Stock Transfer Company of Scottsdale, Arizona. Our common stock trades
in the over-the-counter market under the symbol ESMT. Our telephone number is (702) 447-5210. The 2000 Merger On October 20, 2000, Boppers, Boppers Acquisition Corp., a then newly-formed Nevada corporation and wholly owned subsidiary of Boppers (BAC), and
e-Smart Systems, Inc., a Nevada corporation (e-Smart Systems) and
wholly owned subsidiary of Intermarket Ventures, Inc., a Utah corporation
(IVI), entered into an Agreement and Plan of Merger (the Merger Agreement).
Pursuant to the terms of the Merger Agreement: (i) Boppers acquired all of the
issued and outstanding shares of common stock of e-Smart Systems; (ii) BAC
merged with and into e-Smart Systems such that e-Smart Systems was the
survivor; (iii) e-Smart Systems became a wholly owned subsidiary of Boppers;
and (iv) IVI, the sole shareholder of e-Smart Systems, acquired control of
Boppers as described below. Prior to the consummation of the transactions contemplated by the Merger
Agreement, Boppers had 200,000,000 authorized shares of Common Stock, par value
$.001 per share (the Boppers Common Stock), 20,000,000 authorized shares of
Preferred Stock, par value $.001 per share and 3,501,000 issued and outstanding
shares of Boppers Common Stock. Pursuant to the Merger Agreement, Boppers: (i)
issued 58,600,000 shares of Boppers Common Stock to IVI in exchange for
58,600,000 shares of e-Smart Systems common stock, par value $.001 per share,
owned of record by IVI; and (ii) converted warrants to purchase an aggregate of
2,900,000 shares of e-Smart Systems common stock at $10.00 per share into
warrants to purchase an 4




---



##### Table of Contents



aggregate of 2,900,000 shares Boppers Common Stock at $10.00 per share (the
Warrants). The foregoing caused a change in the control of Boppers. On November 27, 2000, Boppers management resigned
and the Registrants present management took control. The Companys name was
changed from Boppers Holdings, Inc. to e-Smart Technologies, Inc., effective
December 22, 2000. By virtue of a merger that was completed on December 22, 2000, and
pursuant to subsequent grants of rights from IVI Smart (defined
hereinafter), we directly own the
exclusive license for certain technologies
for the U.S.A. and Asia except China. In addition, and through
our wholly owned subsidiary e-Smart Systems, Inc., a Nevada
corporation, we own the exclusive license for China to the smart card
technology and any and all other smart card related assets originally developed
or otherwise owned by IVI,
one of our major shareholders, and now owned by IVI Smart
Technologies, Inc., a Delaware corporation and subsidiary of IVI
(IVI Smart).
IVIs and now IVI Smarts research and development lab was the
creator of what we believe to be the market leader in multi-application smart
card solutions. IVI dubbed this technology the Super Smart Card System. We
have sublicensed the rights to market the technology to state and federal
agencies to our forty-five (45%) percent owned affiliate, Homeland Defense,
Inc., a Nevada corporation, which is majority owned (fifty-five (55%) percent)
by our Chairman, Chief Executive Officer, President and Chief
Financial Officer Mary Grace. Products The Company, IVI Smart and our subsidiaries and affiliates are all
principally engaged in the business of creating, marketing, manufacturing,
installing, operating and maintaining proprietary systems that are designed to
positively authenticate each and every end user of any networked or local
access system while protecting at all times all information residing on or
transported by the system. These products are designed to provide assurance
that the user is the person that he or she claims to be and whether or not he
or she has the credential to access the premises or information being sought.
As stated, our business is providing and operating systems. We intend to earn
income primarily from transaction fees and/or other service based fees
connected to the use of our systems once installed. We do not intend to
either manufacturer or install systems on our own, rather, we intend to
outsource manufacturing of our Super Smart Card, Super Smart Readers and
proprietary components under OEM agreements; and to outsource installation to
select partners that are major systems integrators in each country of
installation. Prior to the sale of a system, our business activities are
strictly limited to marketing, research and development, and customer
customization. After a sale is made, we supervise the manufacture and
installation of the system and, once deployed, operate the system on behalf of
the purchaser. By outsourcing all other activities, we hope to keep our cost
of operations down and minimize the complexity of our business. One of the key distinctions of our system from all other systems is our
proprietary smart card, the Super Smart Card. We believe that we are the
worlds first and currently the only provider of a commercially available dual
ISO 7816 (contact) and ISO 14443 B (wireless) compatible smart card featuring
both a fingerprint sensor onboard, a biometric matching engine onboard and a
multi-application microprocessor. To our knowledge, as of the date hereof, the
Super Smart Card is the only dual-interface biometrically activated,
microprocessor-based 5




---



##### Table of Contents



smart card product. Because our Super Smart Card contains a microprocessor, it
can store and process information and run multiple applications. Because our
Super Smart Cards have an on-board digital fingerprint sensor, hold a
biometric fingerprint template, and have an onboard biometric matching engine,
our Super Smart Cards are able to perform an ID verification without reference
to any network (or any other) database. For this reason, we call the Super
Smart Card biometrically activated or biometrically powered. Our cards are
referred to as dual interface because they work either in conjunction with a
reader that requires physical contact with the card to supply power and to
transfer data or with a reader that does not require physical contact with a
card reader, as power and data are transferred to each card through a magnetic
field generated by a card reader. Our Super Smart Card combines the benefits
of microprocessors, biometrics and dual interface cards in an ISO compatible
system and form-factor. All of our products are designed to operate on a common platform which we
currently refer to as the Biometric Verification Security System or the BVS2
(the current and improved version of the Super Smart Card System). The BVS2
Platform is based on our licensors pending patents and other proprietary
technologies and consists of our Super Smart Card (our unique smart card with
an on-board biometric multi-application micro-processor, a unique on-board
biometric sensor (fingerprint) and a unique digital photo ID system among other
items), readers, operational software, application development software and a
communication technology that ensures that the transmission of data to and from
the Super Smart Card and throughout the system is secure and reliable. The
BVS2 can be customized to support a large number of applications in a
multitude of markets. Some of the markets for which we have customized the
BVS2platform include national security, immigration/border crossing, ID-fraud
free credit/debit card pre-processing, welfare/food-stamp benefits and medical
services. We believe that there is no existing practical limit to the number
or types of applications we can customize our system to run. Our products offer the following benefits:  
    
    The information stored on our card and transferred between
the card and the reader is secured behind biometric activation and
is protected by both physical and software encryption down to the
physical layer (our PrestoChango protection system);
    
    The biometric system being completely on the card with full
independent operation capabilities allows for identity and
credential verification even during emergency situations where
denial of service attacks or other network outages prevent network
database access and would cause many other systems to fail;
    
    Our Super Smart Cards support multiple, independent
applications secured even from each other on the same card, each
protected by the biometric and each protected end-to-end throughout
the system by our proprietary information protection system,
PrestoChango;
    
    The system operator of the BVS2 platform (whether we or
anyone else) has no access to user or customer information unless
granted access by the application owner for some specific reason;
and 6




---



##### Table of Contents




    
    Our cards are durable and easy to use, our technology can be
placed in objects that take a variety of forms, such as key chains,
wristwatches and necklaces/pendants. The e-Smart Solution We believe that our Super Smart Card has a technological advantage over
any other existing smart cards that we have seen in the market. The Super
Smart Card is a dual interface card working with existing contact and existing
wireless type B readers. The Super Smart Card is a complete biometric
system with its own sensor and matching system onboard every card. The Super
Smart Card is an advanced microprocessor type smart card protected by a
hardware based firewall enhanced by software that protects data down to the
physical layer. We believe that our Super Smart Card is rendered useless if
tampered with and that counterfeiting is not possible. In short, we believe
that at this time the Super Smart Card is a one-of-a-kind piece of technology
that gives us a competitive advantage over all other suppliers and that makes
us a sole source supplier to anyone that needs a reliable, stand-alone, privacy
protected, biometrically empowered system of identity verification for all
purposes whether for public security or private commercial use. Our technology not only enables a microprocessor-based smart card system
to operate in both a contact and a contactless environment, but also enables
our biometric fingerprint sensor and biometric engine to work in both a contact
and a contactless environment as well. We believe that this ability to operate
the biometric system both with a contact reader and wirelessly is but one of
the abilities unique to our Super Smart Card. As the Super Smart Card is an
ISO compatible smart card, our technology is not only available for new
systems, but can be integrated with existing contact and contactless (wireless)
systems. The Biometric Verification Security System (BVS2) The BVS2 is an integrated platform designed from the ground up to provide
a security blanket of networked services necessary to protect
everything from a single system to a nation-wide system. We believe that the BVS2 is a complete
platform that can accommodate virtually any existing peripheral deemed
appropriate for whatever task is required. We also believe that the BVS2s
architecture is totally modular and upgradeable, almost infinitely scalable,
fault tolerant, redundant and highly trustworthy. Authorized access  both
physical and logical  is provided via the BVS2s secure, standardized and
irrefutable biometric credential as generated by the Super Smart Card (as
described below). All BVS2 transactions (financial, data or otherwise) are routed
through, logged, indexed and sorted by the BVS2s Universal Gateway
subsystem. This subsystem is empowered by a secure group of networked servers
that can access an almost unlimited numbers of diverse and legacy database
systems and protocols via the Universal Gateways exceptional data translation
system, the Automated Protocol Manager (APM). If the BVS2 is tasked to
make an inquiry of the normally incompatible database systems of multiple
domestic and foreign agencies; the BVS2 can complete the inquiry quickly and
efficiently, without human 7




---



##### Table of Contents



intervention, automatically combining normally irreconcilable data into one
single language report. The BVS2s instant data-field manager allows any
authorized user to instantly change information requests. With the addition of
an optional analysis module, the BVS2s proprietary algorithms can analyze
data customized to user requirements. In short, the BVS2 is an easy to use,
yet extremely powerful system built to provide security to entire nations. At
the same time and without unnecessary hampering the work and needs of
government officials, we believe that the BVS2 offers the maximum in privacy
protection to individuals. Some Key Components and Subsystems
Comprising the BVS2 are described below. The Super Smart Card The Super Smart Card is the tool required to unlock a BVS2
Transaction. A BVS2 Transaction can be many different things depending on
the application in use. However, whether a money transaction or a data
transaction or an access transaction or any other transaction, the Super Smart
Card utilizing our complete on-board biometric fingerprint matching system and
our Presto Chango application and information security system is the BVS2s
ignition and the users fingerprint is the key to start the BVS2
Transaction. The Super Smart Card is a unique interoperable smart card featuring a
non-JAVA based, multi application micro-processor that can perform multiple
independent and discrete functions all protected behind hardware firewalls
enhanced by software within the chip (the Presto Chango system). In addition,
each Super Smart Card contains our own unique fingerprint sensor and biometric
processing engine. No biometric data ever leaves the card in the privacy
protected version of the Super Smart Card. Biometric data resides only on the
Super Smart Card. All biometric processing is done on the card. Only the
finger of the owner of each Super Smart Card placed on their own Super Smart
Cards fingerprint sensor will activate the card, thereby insuring the
personal privacy of each holder. We believe that Identity theft is
theoretically made impossible. Lost or stolen cards have no value to anyone.
The Super Smart Card, which we believe to be both tamperproof and
counterfeit-proof, supports multiple discrete applications including, among
others: ID Card, Debit/Credit Card, Drivers License and Physical and/or
Logical Access Card. The standard Super Smart Card features an ISO contact operation interface
(ISO 7816) and an ISO wireless operation interface (ISO 14443 B) and will
operate on most ISO compatible contact 7816 readers or wireless 14443 B
readers. The Super Smart Card is an integral part of the BVS2. Every Super
Smart Card contains an on-card biometric fingerprint sensor and digital 3-D
photo ID system. Any other biometric can be added to the card and to the
system. The Super Smart Card is inherently secure due to our hardware-based
architecture. Each application on a Super Smart Card is secured from access
by any unauthorized party by virtue of our on-chip hardware firewall system and
our high-level encryption system, Presto-Chango. Other card systems, such as
those now used for the DOD CAC cards, rely on and run software, primarily JAVA
based, to create pseudo multi-applications all with the inherent security
problems of JAVA. 8




---



##### Table of Contents



The following is a summary of certain of the salient features of the Super
Smart Card:  
    
    Unique Sensor On-Card. Only the fingerprint of the
registered user can activate the card. The sensor performs with equal
reliability with wet, dry, hot or cold fingers. The system prevents
unauthorized use of any card or card application by requiring the
authorized cardholders fingerprint to activate the micro-processor
inside and to initiate any transaction or to access any information
(see below for more information about our fingerprint sensor);
    
    Fraud-proof, counterfeit-proof and hack-proof. We believe
that the physical characteristics of each Super Smart Card causes
tampering to permanently disable it and destroy any information
contained therein. We also believe that counterfeit cards cannot work
on the system, rendering any fake cards absolutely useless for all
purposes;
    
    Hardware Based, Software Enhanced, Multi-Application
System.
One card can contain multiple and independent and secure applications.
For example, the technology will permit/deny access (physical and/or
logical), identify precise location and/or movement of personnel and/or
watch list parties while at the same time operating other secure
applications, each completely and securely isolated one from the other;
    
    Immediate identification Assurance & Privacy
Protection.
The system provides immediate and we believe sure authentication for
all users and their credentials once they are properly enrolled onto
the system. All biometric details are stored only on the Super Smart
Card and not in any database (except where required by law, e.g., for
INS needs or as required by certain voluntary programs) and the user
leaves his or her fingerprint only on his or her own card which never leaves their
hand;
    
    Stolen fingerprints of no use. Unlike other systems where a
stolen fingerprint can mean a stolen identity, use of biometric
information alone without ones own Super Smart Card is of no use with
the BVS2. Each persons biometric information is inextricably
entwined with certain other information unique to that user. Unless
the biometric presented contains the additional unique information just
mentioned (i.e., ones own Super Smart Card), not even the true owner
of the biometric information will be granted access without the
intervention of at least one, if not two high level, human, operations
supervisors/officers intervention, to establish the identity of the
person concerned; and
    
    One Card System  Multiple Government Applications  Total
Security  Saves Taxpayer Money. The Super Smart Card allows
multiple secure applications to co-exist and operate on the same card.
Because of the versatility of the BVS2 and Super Smart Card, one card and one system
can be used by every federal agency, saving the cost of having a
multitude of systems and infrastructure to support each. In addition,
because of the many services that the Super Smart Card can securely
perform, there are many opportunities to defray costs by using one
multi-purpose card and one multi-purpose network system and charging separate application fees for each
application. In addition, we believe that since there is broad
compatibility with many of the readers already in use, our system will,
upon installation, save time and money for certain uses. 9




---



##### Table of Contents




    
    More information Regarding Our Fingerprint Sensor. A key
component of each Super Smart Card is the BioSensor Fingerprint
Sensor. Each Super Smart Card contains one of these tiny (.33 mm
thin), low power consumption sensors that is durable enough to be
embedded in a smart card and yet not effected by static electricity, the
elements or the condition (wet, dry, hot, cold) of the users skin.
Imaging is in 3D and based on micro-pressure variations across the
sensor surface caused by the ridges and valleys existing in ones
fingerprint. Users of the Super Smart Card with our built in sensor
do not have to be concerned about leaving their fingerprint(s) on some
reader that is fixed on a wall or sitting on a desk for someone to
steal. The cardholder is always in control of his or her own
fingerprint(s). The biometric fingerprint sensor incorporated in the
Super Smart Card was developed by BioSensor LLC, a Hawaiian limited
liability company (BioSensor) and wholly owned subsidiary of IVI
Smart, utilizing base intellectual property developed by IVI Smart but
productized by BioSensor.Use of the sensor is made possible pursuant to a Confidential Technology
Assignment and License Agreement dated as of May 1, 2003, with IVI Smart,
a principal stockholder of our Company (the License Agreement).
Pursuant to the License Agreement, IVI Smart granted to BioSensor the
exclusive right to develop certain of our intellectual property at
BioSensors sole cost and expense with respect to certain biometric
fingerprint sensor technology created by IVI Smart and BioSensor granted
to IVI Smart the exclusive rights to any sensor developed by BioSensor.
In consideration for the use of IVI Smarts intellectual property,
BioSensor issued 50,000,000 of its Common Units to IVI Smart. No other
Common Units were issued by Biosensor. Accordingly, Biosensor became a
wholly owned subsidiary of IVI Smart and an affiliate of the Registrant.
In consideration for the exclusive rights to use the sensor technology
developed by BioSensor, IVI Smart agrees to pay a one-time royalty to
BioSensor equal to $.35 for each Super Smart Card sold or distributed by
IVI Smart or any affiliate or licensee.
    
    The Zero/Zero System. Our Zero False Acceptance - Zero
False Reject system is believed by us to be unique in the field of
biometrics. In the normal course, when setting a biometric system, the
closer to theoretical zero false acceptances you set your matching
system for, the further you get from zero false rejections. In fact, a
false rejection rate in the 30% to 40% range is not unheard of when many
systems are set to the theoretical zero false acceptance rate. A false
acceptance means the system confirms that you are someone else. A
false rejection means the system will not confirm that you are who you
really are. Based on our internal studies, our Zero/Zero System, using
a patent pending technique that combines human factors with mechanical
factors, is able to reduce the false reject rate to something less than
0.5% on the first use and to something less than 0.2% after the third
to fifth use of the system by each new user. This reduction in the
false rejection rate is extremely significant when dealing with high
volumes of people in situations such as border crossings and airports.
Each false rejection means that valuable time and manpower must be used
to conduct a secondary inspection to check someone who is already
cleared and increases the risk that an unauthorized individual will get
through in the confusion. The Zero/Zero System is built in to of our
Super Smart Cards. 10




---



##### Table of Contents



Card Readers The
card reader is the tool that supplies power to our Super Smart
CardsTM and the instrument through which each card communicates with the BVS2TM platform. We intend to offer a full complement of readers as
part of our proposed BVS2 system offering. For clients that need readers, we
intend to offer a family of multi-system readers ready to meet almost any need
that the market may have. These include a handheld wireless internet appliance
and card reader to a dedicated stand alone desktop reader to interface modules
that allow the use of most standard, off the shelf PDAs, sub-notebooks and
other similar devices. We intend to offer a browser-phone with a contact card
reader already incorporated. Our latest reader is a mobile GPRS based internet
appliance with constant wireless access to the commercial mobile internet.
This reader features a large, full color LCD display, a keyboard and a printer
all in a handheld battery operated unit. We believe that there will be a large
demand for this reader. All of our readers will be manufactured under contract
with established card reader manufacturers on an as ordered basis based on
customer orders as received. We intend to distribute these readers on a fully
burdened cost basis making little or no profit and generally retaining
ownership and maintenance responsibilities. (For the avoidance of confusion,
maintenance responsibilities are outsourced to our strategic partners.) The Universal Gateway with Legacy Preserver Technology The
BVS2 features a special gateway, that is designed to both take
in all types of information from multiple sources and applications
and forward it to its correct destinations and to translate the Babel-Speak of over one hundred (100) different legacy
systems and technical services (this prevents the need to replace entire systems in use). When any
such legacy system is attached to a BVS2 empowered network using our Legacy
Preserver hardware, virtually all information passing through the network
enters the Universal Gateway and by default is translated by the Universal
Gateways Automated Protocol Manager into a common language such that the
information becomes available for use on all connected systems. Translation is
in near real-time with the speed of any particular datas delivery basically
controlled by the transmission speed of the legacy system that such data
resides on. The Universal Gateway is a distributed system with redundant back
up at all points. We believe that in the unlikely event that any node went
down including the redundancy, that failure would not shut down the entire
system. Presto-Chango Presto-Chango is designed to protect computer information down to the
physical layer from unauthorized access. We believe that any attempt to move
information from our storage place without proper authority causes that
iteration of the information to morph into gibberish that cannot be deciphered
by anyone or any system. Authorized access allows information to move,
encrypted for transport, for any authorized and proper use which can be
specified by user. Coupled with the BVS2s operating software, Presto-Chango
is designed to enable sensitive information to transit the Internet or any
public network without risk of information theft. Working together with the
Super Smart Card, we believe that our system can provide superior logical
protection where truly secure computer access and records are an absolute
requirement. 11




---



##### Table of Contents



Our Strategy Our goal is to create a global network featuring the BVS2 platform that
allows the full potential of each Super Smart Card to be used anywhere in the
world and the maximum potential transaction fees for us. Key elements of our
strategy include: Enhance Technological Position.We intend to continue to invest in
research and development in order to enhance our technological position,
develop new technologies, extend the functionality of our products and
services, and offer innovative products to our customers. For example, at the
request of a potential government client, we have just completed the
development of a fully wireless biometric passport that can match fingerprints
on a stand alone basis or faces when coupled with our digital video reader or
both. We intend to continue with this type of research and development that
can lead to immediate potential sales. During fiscal year 2002, the
Company spent approximately $350,000 on research and development.
During fiscal year 2003, the Company spent approximately $900,000 on
research and development. Expand Domestic Market Presence.We are directly and through our Homeland
Defense, Inc., affiliate actively engaged in marketing efforts to various
agencies of the U.S. federal government. We have especially targeted various
agencies within the Department of Homeland Security, including but not limited
to the Bureau of Immigration and Customs Enforcement and the Transportation
Security Administration. We intend to step up our marketing efforts to these
and other agencies both on a direct basis and on a partnering basis with major
U.S. domestic systems integrators in line with these agencies current policy
of awarding virtually all major contracts to a handful of well known
integrators, such as, EDS, Accenture, CSC and the like. Expand Global Market Presence.Our sales and marketing effort is directed
from Las Vegas, Nevada. Currently, we market our products in Asia from our
marketing subsidiary in Seoul, Korea and through strategic partnering
agreements with two global IT companies and a Chinese state-owned company for
domestic sales in the Peoples Republic of China. We intend to use these
entities to strengthen our presence in existing markets, penetrate new markets,
provide local customer service and technical support, and adapt our products to
our local customers specific needs. Generate Recurring Revenues.We rejected a business model that called for
one-time payments for our products and technologies. Other companies that have
followed the one-time payment model in the smart card business, such as Gemplus and
Oberthur, have not fared well financially through business cycles during the
low end of business cycles. Instead, our business plan is to sell entire
systems, including our Super Smart Cards, only on a turn key basis in a manner
that permits us to operate the system and collect transaction fees and service
fees for an extended period of time. Our business plan is also to focus on
large scale governmental clients that will cause wide use of our Super Smart
Card in the event of a sale and in such circumstances would maximize our
potential transaction fee base. Leverage Existing Relationships and Seek New Ones. We have entered into a
relationship with Daewoo International, among others, to help us cover the
Asian national ID card market. We have entered into this relationship, and
others, in order to facilitate and accelerate our penetration into new markets,
and to assist us in defining and pursuing new applications for our products. We
are continuously seeking additional relationships to complement our marketing
strategy and promote our brand worldwide. 12




---



##### Table of Contents



Leverage Presence in Existing Industries to Enter into New Industries.We
intend to offer our customers the ability to add new applications to their
smart cards, thereby expanding the number of industries in which our products
are used and the number of transaction fees that we could potentially collect.
For example, users of the national ID card will have the option to add a
payment application to their card among many others. We plan to generate
additional revenues through the sale and installation of the software required
to add and operate these applications. Marketing and Distribution We intend to enhance our position in the design and development of Super
Smart Card based products by developing new applications for our technology.
We also intend to enter new markets, either alone or through strategic
relationships. In so doing, we aim to create additional potential sources of
revenues from transaction fees and additional potential sources for revenue
from customer support. We intend to market our technologically advanced products directly,
through our Homeland Defense, Inc. affiliate, and through e-Smart Korea, Inc.,
our Korean subsidiary, as well as indirectly through a global network of
strategic relationships with major systems integrators and others. Our sales
and marketing efforts will be directed from our offices in Las Vegas, Nevada.
We do not engage in any significant advertising activities. Proprietary Technologies We are the owner of three technology licenses. Each license has been
granted pursuant to an Exclusive Use and Distribution Agreement (collectively
the License Agreements), each of which grants us exclusivity to the
technology covered in a particular territory. The three territories covered
are the Peoples Republic of China, all of Asia except the Peoples Republic of
China and the United States of America. IVI Smart, the current licensor, is
one of our principal shareholders. The rights to technology granted to us
includes all smart card and related assets of the licensor including the Super
Smart Card, the BVS2 platform and all relevant components thereof. The
License Agreements require that all inventions and improvements made by us be
assigned to the licensor with a license to use granted back to us on the same
terms and conditions as the technology was granted to us in the original
license. We are jointly responsible to protect and defend the technology in
the event of challenge, or disputes of any kind in a covered territory. Our success and ability to compete depend in large part upon the
protection of the proprietary technology that we license. We and the licensor
rely on a combination of patent, trademark, copyright and trade secret law, as
well as know-how, confidentiality agreements and other contractual
relationships with employees, affiliates, distributors and others. In this
regard, our licensor has a number of pending patent applications in various
jurisdictions, globally. Neither we nor the licensor can be certain that patents will be issued
with respect to any of the pending or future patent applications. In addition,
as with every other company that depends on patents, until the outcome of any
future litigation is determined, we can not be certain that any patents if
issued will be enforceable against alleged infringers or will be upheld if
their validity is challenged. 13




---



##### Table of Contents



Recent Developments Commencing in the spring of 2003, we began a global marketing program with
particular emphasis in Asia. In October 2003, we authorized the creation of
e-Smart Korea, Inc. as a wholly owned Korean subsidiary. During the first
quarter of fiscal 2004, and through our new Korean subsidiary, we entered into
two material agreements that we believe will lay the groundwork for our
transition to operating status. On February 25, 2004, we signed a Mutual
Cooperation Agreement with Daewoo International (Daewoo), a multinational
trading company, manufacturer and infrastructure builder-provider (the Daewoo
Agreement). On February 27, 2004, we entered into a Master Teaming
Agreement (the Samsung Agreement) with Samsung SDS (Samsung), a leading
global IT solutions provider in Korea with annual revenue of in excess of US
$1.43 billion. In addition, the Company directly entered into another material
agreement that is designed to pave the way towards re-commencing operations in
China. In that regard, we directly entered into a Cooperation Agreement on
February 27, 2004 with a Chinese corporation principally owned by entities
controlled by the PRCs Ministry of Information Industry (the China
Agreement). The following is a summary of each of the foregoing agreements: A. The Daewoo Agreement. In furtherance of our business plan, we
endeavor to engage or partner with a large system integrator in undertaking any
given project. Towards that end, and pursuant to the terms of the Daewoo
Agreement, the parties have agreed to work together to identify projects on an
international basis within listed countries that capitalize both on the unique
biometric and other systems developed by us and on Daewoos strengths within
those countries. Upon jointly agreeing to pursue a potential project, a project
specific agreement will be entered into on terms to be negotiated on a case by
case basis. We have commenced discussions concerning our first joint project
and have commenced negotiating the terms of the first project-specific
agreement. Prior to the date of the Daewoo Agreement, Daewoo chose our Super
Smart Card and BVS2 to gain an
edge over competitors in the national ID market. B. The Samsung Agreement. Samsung is a leading contender in the
domestic Korean market for the development and implementation of a National ID
Card and other large scale public ID card systems. We believe that Samsung,
like Daewoo, selected our biometric systems, because when configured for a
privacy protected, multi-application, National ID Card, our systems provide a
powerful tool for identity verification that is useful for security purposes,
an exceptional ability to prevent ID theft crimes and a unique ability to
protect the privacy and civil rights of each cardholder. Under the terms of
the Samsung Agreement, the parties have agreed to work together to identify
domestic Korean projects as well as certain international projects that
capitalize on the unique features of our technologies and upon Samsungs status
and implementation abilities. Upon jointly agreeing to pursue a potential
project, a project-specific agreement will be entered into on terms to be
negotiated on a case by case basis. To date, the parties have identified three
potential projects and discussions are underway in connection therewith.
Despite the clear need to protect the Korean public from identity theft and
other ID related crimes, however, the notion of a national ID card with a
biometric system has stirred controversy regarding privacy related issues
amongst both legislators and privacy groups. These fears, coupled with the
failure of other biometric systems 14




---



##### Table of Contents



tested in the Korean public arena, have prevented the introduction of a
biometric National ID Card in Korea. C. The China Agreement. We have agreed to form a joint venture
company in the Peoples Republic of China (PRC) with two PRC companies. One
is primarily owned and controlled by an entity of the Ministry of Information
Industry (MII) named Guo Xin Well-tel Technology Co., Ltd., and the other,
named EarthNetMedia Trading Co., Ltd., is primarily owned and controlled by PRC
persons involved in media and public relations in the PRC. We will be a fifty
(50%) percent shareholder of this joint venture (the maximum allowed by law for
this type of venture) and the two PRC companies will own thirty (30%) percent
and twenty (20%), respectively. The MII was created March 1998 by merging the
former Ministry of Post and Telecommunications, which oversaw network standards
and access, and the Ministry of Electronics and Information, which oversaw
computers and software (and by divesting the resulting ministry of
responsibility for postal administration and the telecom trunk line network).
MII is now described as a super-agency overseeing telecommunications,
multimedia, broadcasting, satellites, and the Internet. The parties to this
Agreement have agreed to work together and to cooperate in doing everything
necessary to create the joint venture and to obtain a business license that
will allow the joint venture to effectuate our business plan of mass
distribution of the Super Smart Card and the operation of the BVS2 throughout
the PRC. Commencing March 1, 2004, Guo Xin Well-tel Technology Co., Ltd.
agreed to provide office space to the joint venture within their offices at the
MII and to provide all required local liaison services necessary to obtain the
required permit necessary to do business in the PRC. We agreed to pay a
non-accountable expense allowance of US$10,000 per month commencing March 1,
2004, in exchange for the above mentioned facilities and services.
Upon its
formation, the joint venture will repay all formation expenses to us. We are
also responsible for providing twenty-five million (25,000,000) Chinese Yuan
(approximately US$3,000,000) capital to the joint venture company after
formation in various trenches over a period of two years commencing with a
payment of fifteen (15%) percent of this total within three months of the
formation of the joint venture with all required permit and licenses having
been issued. Competition Based on our own extensive research, we believe that, at least as of the
date hereof, that there is no product that can directly compete with Super
Smart Card and the BVS2 platform. On the other hand, there are numerous
products and competitors in the smart card and smart card operating system
arena. We must, therefore, anticipate competition in sales of our products,
systems and technologies from other providers of microprocessor-based smart
card technologies. We expect competition to intensify as, and if, we become
successful in our deployment plans and our competitors commit greater resources
to the development of biometrically empowered contactless microprocessor-based
smart cards. Some of the larger chip manufacturers that operate in the smart
card market, including Atmel, STM, Infineon and Philips Semiconductors, have
announced that they are developing contactless microprocessor-based smart
cards. However, we know of no card planned or otherwise that has the
sophistication and features of the Super Smart Card. We also compete with contactless ASIC-based technologies developed
primarily by Philips Semiconductors, which comply with ISO 14443 and which are
used by some of the 15




---



##### Table of Contents



largest manufacturers of smart cards, including Gemplus,
Schlumburger and Giesecke & Devrient, and Sonys contactless ASIC based
technology, that is not ISO compliant. Further, we also compete with
contact-based products such as microprocessor-based contact cards, ASIC-based
contact cards, memory chip cards and magnetic strip cards. We believe that all of these cards offer inferior functionality compared
to our dual interface, biometrically powered, contactless microprocessor-based
smart cards. Nevertheless, some of our potential customers have in the past,
and may in the future, consider these inferior alternatives sufficient for
their needs. Employees As of December 31, 2003, we had two employees; our Chief Executive
Officer, President and Chief Finanacial Officer, Mary A. Grace, who lives in New York City but who travels more than
95% of the time on our behalf, and our Chief Technical Officer, Tamio Saito,
who lives in San Jose, California. None of our employees is a party to
a collective bargaining agreement. Risk Factors The following risks with respect to our proposed business and financial
condition should be carefully considered. These risks and uncertainties are not
the only ones facing us. Other risks and uncertainties that have not been
predicted or assessed by us may also adversely affect us. Some of the
information in this report contains forward-looking statements that involve
substantial risks and uncertainties. These statements can be identified by
forward-looking words such as may, will, expect, anticipate, believe,
intend, estimate, and continue or other similar words. Statements that
contain these words should be carefully read for the following reasons:   The statements may disclose our future expectations; The statements may contain projections of our future earnings or our
future financial condition; and The statements may state other forward-looking information. Risks Related to Our Business We are delinquent in filing reports with the SEC. Although we are required to file annual, quarterly and special reports,
and other information with the Securities and Exchange Commission (the SEC),
we are materially delinquent in our filing of these required reports. During
2003, we filed our Form 10-QSB Quarterly Report for the six months ended June
30, 2003, on November 13, 2003, and our Form 10-QSB Quarterly Report for the
nine months ended September 30, 2003, on December 30,
2003. Prior to that, our last quarterly report was filed on October 10, 2000.
We have not filed any reports for any period during the fiscal years ended
December 31, 2001 or December 31, 16




---



##### Table of Contents



2002. Accordingly, and prior to this report,
there has been limited public information on which to base an informed
investment decision concerning our securities. The SEC commenced an Administrative Proceeding and the Administrative Law
Judge Ruled against us. On December 12, 2002, the SEC commenced an administrative proceeding
against us seeking, among other things, to interrupt public trading in our
common stock. Pending a decision by the Administrative Law Judge, we agreed
to utilize our best efforts to prepare and file our Annual Report on Form
10-KSB for the fiscal years ending December 31, 2002 and December 31, 2003, on
or before March 30, 2004. On March 4, 2004, Lillian A. McEwan, Administrative Law Judge, published
an Initial Decision in the Proceeding. In her decision, the Administrative Law
Judge (i) ordered: that, effective 21 days after the date of the initial
decision, the registration of our common stock be revoked as a result of our
violations of the periodic reporting requirements of the Exchange Act
and (ii) dismissed the
allegations in the Proceeding that we violated Section 12b-20 of the Exchange
Act be dismissed. In accordance with applicable rules, we appealed that
decision and our stock continues to trade. We have no history of revenue from operations and we have only minimal
assets. We have never generated any history of revenue from operations. We have
no significant assets or financial resources other than our licenses of the
smart card intellectual property from IVI Smart. In all likelihood, we will continue
to incur pre-operating expenses without corresponding revenues for the
foreseeable future. This may result in our continuing to incur a net operating
loss which will increase continuously until we can generate cash flow from
operations. There can be no assurance that we will be successful in developing
our proposed smart card operations or that we will ever become profitable. We are undercapitalized and may be unable to continue our business
unless we raise additional money. We have very limited working capital and until we execute a product
specific material contract for our system and smart cards, we will continue to
be entirely dependent upon proceeds derived from private securities offerings
for funds for the continuation of our proposed smart card transaction business.
Currently, we do not have any existing credit facilities or similar bank
borrowing arrangements. We will need to obtain additional financing in order
to implement the material aspects of our business plan. There can be no
assurance that any additional financing will be available to us on acceptable
terms, if at all. If we continue to raise funds by issuing additional equity
securities, further dilution to existing equity holders will necessarily
result. If adequate additional funds are not available, we may be required to
significantly curtail our long term business objectives and may not be able to
transition out of the development stage. Accordingly, we are subject to all of
the risks inherent in starting a new business enterprise
including the potential loss of all monies invested and never realizing any
revenue generating operations. 17




---



##### Table of Contents



It is difficult to evaluate our business and prospects because we do not
have any history of revenue from operations. The present management of the Company assumed control in October 2000.
Since that date, we have not generated any revenue from operations and the
success of our proposed plan of operation will depend, to a great extent, on
the ability of management to successfully implement an untested business model
with limited capital. Our short existence and our lack of working capital make
it difficult to evaluate our current business and prospects or to accurately
predict our future revenue or results of operations. Our revenue and income
potential as well as our business strategy continue to be unproven. The
ultimate success or failure of our smart card endeavor may wind up being
dependent upon numerous factors beyond the control of the Registrant or our
management. We may not be able to operate successfully if we are unable to hire
qualified additional personnel. Our success may largely be dependent on the personal efforts and abilities
of our management and our ability to attract and retain qualified key personnel
in the future. Except for Tamio Saito, our Chief Technical Officer and member
of our Board of Directors, none of our management team has ever operated a
smart card business or has any experience with the manufacture and marketing of
smart card products. In addition to performing their regular duties, our
management must spend a significant amount of time devising strategies to
execute our untested and unproven business model. We are presently dependent upon four people. Our ultimate success or failure will depend to a large extent on the
services and efforts of our two executive and operating officers, Mary A. Grace
and Tamio Saito and two of the co-inventors of our BVS2 and Super Smart Card
technology, Wayne Drizin and Takashi Aida. The loss of the services of any one
or more of these key persons, especially during the initial stages of our
operations, could disrupt our business and harm our operations. In the event
of the untimely demise, unavailability or disability of any one or more of
these four persons, there can be no assurance that we will be able to secure a
successor of equivalent talent and experience. As stated in greater detail in this report, our technology was developed
primarily by Tamio Saito and Wayne Drizin, while the key managers of our
business operations were Mary A. Grace and Tamio Saito. During the period
since our last periodic filing, our marketing efforts have resulted in
contracts and/or ongoing negotiations with an increasing number of governmental
and private entities in the United States and abroad. Our ability, at this
point, to effectively pursue each of these potential contracting opportunities
and to design and complete system installation in connection with those
contracts is dependent on the continued efforts not only of Ms. Grace and Mr.
Saito, but also the other co-inventors of the system, Wayne Drizin and Takashi
Aida. Both of these individuals have consulting arrangements with us. Mr.
Saito, Mr. Drizin and Mr. Aida were instrumental in the development and the
refinement of the system
which forms the basis for the employment of the e-Smart biometric card. We
believe that Messrs. Saito, Drizin and Aida are the individuals best able to
continue to refine, to present and to customize the use of our system and
oversee its installation. In the event we were to be 18




---



##### Table of Contents



deprived of the services
of any of these three individuals, our ability to pursue, procure and fulfill
contracting opportunities will be materially decreased and/or delayed. We have no Key Man Insurance. Presently, we do not maintain or carry any key man life insurance. We
intend to purchase life insurance on the lives of our key personnel as soon as
we are financially able. Upon purchase of this insurance, we will pay the
premiums and designate the Company as the sole beneficiary. The lack of key man
coverage and the lack of other such insurance may have a material adverse
effect upon our business in the event of the untimely loss of any of our four
key employees. We may be deprived of the services of a co-inventor of our Super Smart
Card technology. In September of 2000, the U.S. Attorneys Office in Phoenix, Arizona,
charged Wayne Drizin, a co-inventor of our Super Smart Card technology, with
six counts of wire fraud in connection with certain share transactions
involving a predecessor of IVI that allegedly took place during 1995 and 1996.
In October 2003, and after a trial by jury, Mr. Drizin was found not guilty of
four counts in the complaint but convicted on two counts of wire fraud. Legal
counsel for Mr. Drizin will file an appeal and advised us that based on his
review of the governments case and the evidence presented at trial, he is
confident that the conviction will be reversed. However, and in the event the
conviction is not reversed, it is likely that Mr. Drizin will be barred by the
SEC from serving as one of our executive officers or as one of our directors
and that he may be incarcerated for some period of time. In light of the fact
that Mr. Drizin has never been an executive officer or director, but has
exclusively served as a consultant to us, we do not believe that an SEC imposed
bar will materially and adversely affect our business model. On the other
hand, any incarceration of Mr. Drizin will deprive us of his skills and advice,
and may have a material adverse effect upon our proposed business during any
such period of incarceration. We may not be able to get D&O insurance. The election of qualified independent members of our Board of Directors is
contingent upon our acquiring a policy of directors and officers liability
insurance in an amount reasonably satisfactory to such nominees. Given our
lack of revenue generating operations during our development stage as well as
the adverse decision of the in the SEC Administrative Proceeding (discussed
above), any such policy, we expect, will be very expensive and may not be
available at any price. Our failure to acquire such a policy may prevent us
from attracting the services of qualified independent members to our Board of
Directors. This, in turn, will create a material adverse effect upon our
ability to meet the corporate governance regulations imposed on publicly owned
companies. We have a history of losses and may not achieve profitability in the
foreseeable future. We have incurred losses in each year since our inception. Our losses
resulted primarily from expenses we incurred in research and development,
selling and marketing, as well as in 19




---



##### Table of Contents



general and administrative expenses. We
have never had any revenue. We expect to continue to incur operating losses in
future periods as we invest in the expansion of our global operations and
continue to enhance our research and development capabilities and expand our
relationship with contract manufacturers. If the market for smart cards in general, and for biometric,
multi-application-based smart cards in particular, does not grow as we expect,
we may not succeed in selling our products. The success of our products depends on commercial enterprises,
governmental authorities and other potential card issuers adopting biometric
multi-application based smart card technologies. Other card technologies, such
as magnetic strips or bar codes, are widely used and could be viewed by
potential customers as more cost effective alternatives to our products.
Additionally, potential customers in developed countries such as the United
States may already have installed systems that are based on technologies
different than ours and may therefore be less willing to incur the capital
expenditure required to install or upgrade to a biometric
multi-application-based smart card system. As a result, we cannot provide any
assurance that there will be significant market opportunities for smart card
systems. If demand for biometric multi-application-based smart card products
such as ours does not develop or develops more slowly than we anticipate, we
may have fewer opportunities for growth than we expect. If we fail to develop new products or adapt our existing products for use
in new markets, our revenue growth may be impeded and we may incur significant
losses. To date, we have not sold any products incorporating our technology in any
markets. We are currently developing and attempting to market our technology
for use as national identity cards for use by governmental authorities. We have
yet to recognize revenues from sales of these products. We are devoting
significant resources to developing and marketing these and other products and
adapting our existing products for use in new markets. If we fail to develop a
market for our products we will not generate any revenue and continue to incur
significant losses. We intend to derive a significant portion of our revenues from sales to
systems integrators who are not the end-users of our products. Accordingly, we
may become dependent on the ability of these integrators to maintain their
existing business and secure new business. We anticipate that much of our revenue will be derived from sales to
systems integrators who incorporate our products into systems which they supply
and install for use in a specific project. To the extent our revenues depend on
systems integrators ability to successfully market, sell, install and provide
technical support for systems in which our products are integrated or to sell
our products on a stand-alone basis, our revenues may decline if such systems
integrators efforts fail. Further, the faulty or negligent implementation and
installation of our products by systems integrators may harm our reputation and
tarnish our brand name. Because we may be one step removed from the end users
of our products in this situation, it may be more difficult for us to rectify
damage to our reputation caused by systems integrators who have direct contact
with end users. In addition, termination of agreements with systems
integrators or revocation of
exclusive distribution rights within a certain area may have negative effects
on our business. Further, if we are unable to maintain our current
relationships with systems integrators or 20




---



##### Table of Contents



develop relationships with new
systems integrators, we may not be able to sell our products and our results of
operations could be impaired. Unless we continue to expand our direct sales, our future success will
depend upon the timing and size of future purchases by systems integrators and
the success of the projects and services for which they use our products. Our inability to maintain our current, and establish new, strategic
relationships could impair our revenue growth. The markets for our products are usually highly specialized and require us
to enter into strategic relationships in order to facilitate or accelerate our
penetration into new markets. We consider a relationship to be strategic when
we integrate our technology into some of the product offerings of a systems
integrator that has a significant position in a specified market, and then
cooperate in marketing the resulting product. The termination of any of our
strategic relationships or our failure to develop additional relationships in
the future may limit our ability to expand the markets in which our products
are deployed or to sell particular products, and thereby impair our revenue
growth. We face intense competition. If we are unable to compete successfully, our
business prospects will be impaired. We face intense competition from developers of contact and contactless
microprocessor-based technologies and products, developers of contactless
products that use other types of technologies that are not
microprocessor-based, and non-smart card technologies. We compete on a range of
competitive factors including price, compatibility with the products of other
manufacturers, and the ability to support new industry standards and introduce
new reliable technologies. Many of our competitors, such as Phillips
Semiconductors, a division of Phillips Electronics N.V., and Infineon
Technologies AG, have greater market recognition, larger customer bases, and
substantially greater financial, technical, marketing, distribution, and other
resources than we possess. As a result, they may be able to introduce new
products, respond to customer requirements and adapt to evolving industry
standards more quickly than we can. While at the moment we believe we offer a unique product that is easy to
differentiate from our competitors, in the future, we may not be able to
differentiate our products sufficiently from those of our competitors. If we
cannot compete successfully with our existing and future competitors, we could
experience lower sales, price reductions, loss of revenues, reduced gross
margins and reduced market share. From time to time, we or one or more of our present or future competitors
may announce new or enhanced products or technologies that have the potential
to replace or shorten the life cycles of our existing products. The
announcement of new or enhanced products may cause customers to delay or alter
their purchasing decisions in anticipation of such products, and new products
developed by our competitors may render our products obsolete or achieve
greater market acceptance than our products. 21




---



##### Table of Contents



If there is a sustained increase in demand for microprocessors,
availability might be limited and prices might increase. Our products require microprocessors and other silicon based chips. The
microprocessor industry periodically experiences increased demand and limited
availability due to production capacity constraints. For example, there has
been a shortage in the availability of microprocessors since the middle of
1999. Increased demand for, or limited availability of, microprocessors could
substantially increase the cost of producing our products. In addition, as a
result of a shortage, we may be forced to delay shipments of our products, or
devote additional resources to maintaining higher levels of microprocessor
inventory. Consequently, we may experience substantial period-to-period
fluctuations in our cost of revenues and, therefore, in our future results of
operations. Our products have long development cycles and we may expend significant
resources in relation to a specific project without realizing any revenues. The development cycle for our products varies from project to project.
Typically, the projects in which we are involved are complex and require that
we customize our products to our customers needs and specifications. We then
conduct evaluation, testing, implementation and acceptance procedures of the
customized products with the customer. Only after successful completion of
these procedures will customers place orders for our products in commercial
quantities, if any. We, therefore, cannot provide an assurance that contracts
that we enter into will result in commercial sales. As a result, we may expend
financial, management and other resources to develop customer relationships
before we become capable of recognizing any revenues. We are dependent on a small number of suppliers for critical components,
delays or discontinuance of the supply of components may hamper our ability to
produce our products on a timely basis and cause short-term adverse effects. The components we use in our products, including microprocessors and
cards, are supplied by third party suppliers and manufacturers. Many of these
suppliers are our sole suppliers. Although we are now in the process of
securing additional sources of supply, in the meantime, we may experience
short-term adverse effects due to delayed shipments that will delay the supply
of our products to our customers, and that may result in cancellation of orders
for our products. In addition, we do not generally have long term supply
contracts under which our suppliers are committed to supply us with components
at a fixed price. Suppliers could increase component prices significantly
without warning or could discontinue the manufacture or supply of components
used in our products. We may not be able to develop alternative sources for
product components if, and as, required in the future. Even if we are able to
identify any alternative source of supply, we may need to modify our products
to be compatible with other components, which may cause delays in product
shipments, increase manufacturing costs and increase product prices. Because some of our suppliers are located in Europe and the Far East, we
may experience logistical problems in our supply chain, including long lead
times for receipt of products or components and shipping delays. 22




---



##### Table of Contents



If we fail to hire, train and retain qualified research and development
personnel, our ability to enhance our existing products, develop new products
and compete successfully may be materially and adversely affected. Our success depends, in part, on our ability to hire, train and retain
qualified research and development personnel. Individuals who have expertise in
research and development in our industry are scarce. Competition for such
personnel is intense in the electronics industry, particularly in the United
States, and therefore hiring, training and retaining such personnel is both
time consuming and expensive. If we fail to hire, train and retain employees
with skills in research and development, we may not be able to enhance our
existing products or develop new products. Our ability to compete depends on our continuing right to use, and our
ability to protect, our intellectual property rights. Our technology is licensed from a major shareholder, IVI Smart (see Proprietary Technologies).Our success and ability
to compete depend in large part on using our licensed intellectual property and
proprietary rights to protect the technology we use and the products we make.
We rely on a combination of patent, trademark, copyright and trade secret law,
as well as confidentiality agreements and other contractual relationships with
our employees, customers, affiliates, distributors and others. Our licensor currently has patents pending in the United States, Europe,
Japan and elsewhere that have not yet resulted in granted patents. We cannot be
certain that patents will be issued with respect to any of these pending or
future patent applications or that the scope of any future patents that are
issued to our licensor, will provide us with adequate protection for our
technology and products. Others may challenge these patents or registered
trademarks. We do not know whether any of them will be upheld as valid or will
be enforceable against alleged infringers and thus we do not know whether they
will enable us to prevent or hinder the development of competing products or
technologies. Moreover, patents provide legal protection only in the countries
where they are registered and the extent of the protection granted by patents
varies from country to country. The measures we have taken to protect our technology and products may not
be sufficient to prevent their misappropriation by third parties or
independent development by others of similar technologies or products.
Competitors may also develop competing technology by designing around our
patents and will then be able to manufacture and sell products which compete
directly with ours. In that case, our business and operating results would be
harmed. While substantially all of our employees are subject to non-compete
agreements, these agreements may be difficult to enforce or deemed
unenforceable by a court of competent jurisdiction. In order to protect our technology and products and enforce our patents
and other proprietary rights, we may need to initiate litigation against third
parties or defend opposition proceedings before the European Patent Office or
prosecute interference proceedings before the 23




---



##### Table of Contents



U.S. Patent and Trademark Office.
These legal and administrative proceedings could be expensive and occupy
significant management time and resources. Furthermore, a successful opposition to our patent in any jurisdiction
could provide a basis for our competitors to claim that our patents in other
jurisdictions covering this technology are invalid. Our products may infringe the intellectual property rights of others. It is not possible to know with certainty that the manufacture and sale of
our products do not or will not infringe patents or other intellectual property
rights owned by third parties. There may, for example, be patent applications
pending at the moment, which if granted, may cover products that we have just
developed or are developing. In certain other jurisdictions there is no
publication of the subject matter of patents until the patents are issued.
Third parties may from time to time claim that our current or future products
infringe their patent or other intellectual property rights. In addition, if
third parties claim that our customers are violating their intellectual
property rights, our customers may seek indemnification from us, which could be
costly, or may terminate their relationships with us. Any intellectual
property claim could involve time-consuming and disruptive litigation and, if
determined adversely to us, could prevent us from making or selling our
products, and subject us to substantial monetary damages or require us to seek
licenses. Intellectual property rights litigation is complex and costly, and we
cannot be sure of the outcome of any such litigation. Even if we prevail, the
cost of such litigation could harm our results of operations. In addition, such
litigation is time consuming and could divert our managements attention and
resources away from our business. If we do not prevail in any litigation, in
addition to any damages we might have to pay, we might be required to
discontinue the use of certain processes, cease the manufacture, use and sale
of infringing products and solutions, expend significant resources to develop
non-infringing technology or obtain licenses on unfavorable terms. Licenses may
not be available to us on acceptable terms or at all. In addition, some
licenses are non-exclusive and, therefore, our competitors may have access to
the same technology licensed to us. If we fail to obtain a required license or
cannot design around any third party patents or otherwise avoid infringements,
we may be unable to sell some of our products. We are susceptible to changes in international markets and difficulties
with international operations could harm our business. Our ability to penetrate any market whether domestic or international, is
dependent, in part, on political and economic factors that we have no control
over. In addition, there are certain inherent risks in international
operations which include:  
    
    Changes in regulatory requirements and communications standards;
    
    Required licenses, tariffs and other trade barriers;
    
    Difficulties in enforcing intellectual property rights across, or
having to litigate disputes in, 24




---



##### Table of Contents



various jurisdictions;
    
    Difficulties in staffing and managing international operations;
    
    Potentially adverse tax consequences; and
    
    The burden of complying with a wide variety of complex laws and
treaties in various jurisdictions. If we are unable to manage the risks associated with our focus on
international sales, our business may be harmed. We may have to adapt our products in order to integrate them into our
customers systems or if new government regulations or industry standards are
adopted or current regulations or standards are changed. Some of our products are subject to mandatory government regulation in the
countries in which they are used. For example, card readers that are used in
the United States require certification of compliance with regulations of the
Federal Communications Commission and in Europe of compliance with regulations
of the European Telecommunications Standards Institute regarding emission
limits of radio frequency devices. In addition, governmental certification for
the systems into which our products are integrated may be required. The
International Standards Organization is in the process of approving industry
standards regulating the transfer of data between contactless smart cards and
readers. If there is a change to government regulations or industry standards,
we may have to make significant modifications to our products and, as a result,
could incur significant costs and may be unable to deploy our products in a
timely manner. In addition, prior to purchasing our products, some customers may require
us to receive certification that our products can be integrated successfully
into their systems or comply with applicable regulations. Receipt of these
certifications may not occur in a timely manner or at all. In some cases, in
order for our products, or for the system into which they are integrated, to be
certified, we may have to make significant product modifications. Failure to
become so certified could render us unable to deploy our products in a timely
manner or at all. Our products may contain defects that we find only after deployment, which
could harm our reputation, result in loss of customers and revenues and subject
us to product liability claims. Our products are highly technical and deployed as part of large and
complex projects. Because of the nature of our products, they can only be fully
tested when fully deployed. Any defects in our products could result in:  
    
    Harm to our reputation;
    
    Loss of, or delay in, revenues;
    
    Loss of customers and market share;
    
    Failure to attract new customers or achieve market acceptance for our products; and 25




---



##### Table of Contents




    
    Unexpected expenses to remedy errors. In addition, we could be exposed to potential product liability claims.
Currently we maintain no product liability insurance. We intend to seek
product liability insurance prior to the distribution of our products.
However, we cannot provide any assurances that we can obtain this insurance in
an amount that will be sufficient to cover any successful product liability
claim or in any amount at all or for a premium we can accept. If we self
insure or if there is any product liability claim in excess of our insurance
coverage, any related payments would have to be made out of our cash reserves,
and this would harm our business. Furthermore, the assertion of product
liability claims, regardless of the merits underlying the claim, could result
in substantial costs to us, divert managements attention away from our
operations and damage our reputation and business. Nevada Law Permits the Limitation on Directors Liability. Pursuant to our Certificate of Incorporation and under Nevada law, our
directors are not liable to us or our stockholders for monetary damages for
breach of fiduciary duty, except for liability in connection with a breach of
the duty of loyalty, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, for dividend payments or
stock repurchases illegal under Nevada law or any transaction in which a
director has derived an improper personal benefit. Risks Related To Our Common Shares We are controlled by two companies. At December 31, 2003, IVI Smart
and its parent Intermarket Ventures, Inc., a Utah corporation, collectively owned
approximately 77% of our outstanding shares of Common Stock. Accordingly,
these two entities effectively have the ability to control the outcome of all
matters requiring stockholder approval, including, but not limited to, the
election and removal of directors, and any merger, consolidation or sale of
all, or substantially all, of our assets, and to control our management and
effectively have the ability affairs. Our
    share price has fluctuated in the past and may continue to fluctuate in the
    future. The market price of our shares in the over-the-counter market has
experienced significant fluctuations and may continue to fluctuate
significantly. For example, between the second and third quarter of 2003, the
bid price of our common stock increased approximately 560% from $.35 to $2.30.
The market price of our shares may be significantly affected by factors such as
the announcements of agreements, new products or product enhancements by us or
our competitors and technological innovations by us or our competitors. In
addition, while we cannot assure you that any securities analysts will initiate
or maintain research coverage of our Company and our shares, any statements or
changes in estimates by analysts initiating or covering our shares or relating
to the smart card industry could result in an immediate and adverse effect on
the market price of our shares. Further, we cannot predict the effect, if any,
that market sales of shares or the availability of shares for sale will have on the market price of the shares
prevailing from time to time. Sales of a substantial number of shares or the
perception that such sales could occur 26




---



##### Table of Contents



following the filing of this report,
could have a material adverse effect on the market price of our shares. Trading in shares of companies, such as the registrant, listed on the Pink
Sheets in general and trading in shares of technology companies in particular
have been subject to extreme price and volume fluctuations that have been
unrelated or disproportionate to operating or other performance. These factors
may depress the market price of our shares, regardless of whether or not we
ever achieve operating status. In the event we fail to have the Initial Decision of the Administrative
Law Judge reversed on appeal, it is likely that the SEC will revoke the
registration of our common stock and completely halt trading in our shares
until and unless we file a new registration statement re-registering our common
stock and comply with any and all comments requirements imposed by the SEC. We can not predict the further impact on the price of our shares following
the announcement of the adverse decision in the SEC Administrative Proceeding
to revoke the registration of our shares. The March 4,
    2003 decision of Administrative Law Judge Lillian A. McEwan to revoke the
    registration of our common stock as a result of our alleged violations of
    the periodic reporting requirements of the Exchange Act may continue to have
    a material adverse effect upon the bid price of our common stock in the over-the-counter
    market. If this is the case it will, in turn, continue to impair our ability
    to raise working capital through the private sales of our securities, our
    only current source of funds. If our shares continue to be considered a Penny Stock, any investment in
our shares will continue to be considered a high-risk investment and continue
to be subject to restrictions on marketability. Since the bid price of our shares continues to be below $5.00, our common
shares are deemed to be penny stock for the purposes of the Exchange Act.
Brokers effecting transactions in a penny stock are subject to additional
customer disclosure and record keeping obligations. The additional obligations
include disclosure of the risks associated with low price stocks, stock quote
information and broker compensation. In addition, brokers making transactions
in penny stocks are subject to additional sales practice requirements under the
Exchange Act. These additional requirements include making inquiries into the
suitability of penny stock investments for each customer or obtaining the prior
written agreement of the customer for the penny stock purchase. Because of
these additional obligations, some brokers will not effect transactions in our
securities. Our share price could be adversely affected by future sales of our shares. As of December 31, 2003, we had 170,707,012 shares outstanding, exclusive
of shares issuable upon exercise of outstanding warrants and shares reserved
for issuance upon the exercise of outstanding options granted to management and
others. The market price of our shares could drop as a result of sales of
substantial amounts of our shares in the public market following the exercise of either or both of the outstanding warrants or
options. This factor could 27




---



##### Table of Contents



also make it more difficult to raise additional
funds through future private offerings of our shares or other securities. We do not anticipate paying cash dividends in the foreseeable future. We have paid no dividends on our common stock since our inception and
presently intend to continue to retain all earnings, if any, for use in our
business. Investors who anticipate the need for either immediate or future
income by way of cash dividends from their investment should refrain from
investing in our securities. Our shareholders could experience dilution of their ownership interest if
we issue more shares that are purchased by third parties. Under Nevada law, shareholders in public companies such as the registrant
do not have preemptive rights. This means that our shareholders do not have the
legal right to purchase shares in a new issue before they are offered to third
parties. In addition, our board of directors may approve the issuance of shares
in many instances without shareholder approval. As a result, our shareholders
could experience dilution of their ownership interest if we decide to raise
additional funds by issuing more shares and these shares are purchased by third
parties. Conclusion While to date there has not been a strong demand for smart cards
domestically in the USA, this trend is changing. The federal government has
numerous initiatives that require deployment of smart cards, with the
Department of Defense Common Access Card being a prime example. There is a
challenge for suppliers in that there is more than one standard and more than
one type of smart card. In addition, there is a massive installed base of
infrastructure utilizing other technologies (bar codes, magnetic stripe, etc.)
that is difficult to overcome. Todays post 9/11 world, however, demands ID
verification that is fast, simple, sure and secure. From terrorism to identity
theft (one of the worlds fastest growing crimes), society requires accurate
identification of each person. We believe that at this time there is no other
viable system than the Super Smart Card operating on the BVS2 platform that
can make this ID verification while still protecting privacy and civil rights. Available Information This is the first annual report on Form 10-KSB that we have filed, and we
intend to file Form 10-KSBs on a timely basis for all subsequent years. In
addition, we file quarterly reports on Form 10QSB, current reports on Form 8-K,
amendments to these reports, and other information with the SEC. The public
may read and copy any materials we file with the SEC at the SECs Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1800-SEC-0330. The SEC maintains an Internet site (www.sec.gov)
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. 
 ITEM 2. DESCRIPTION OF PROPERTY Pursuant to an Advisory and Administrative Services Agreement effective
January 1, 2001, and dated May 29, 2003 (the ABG Agreement) with Associated
Business Group, Inc., a Nevada corporation controlled by and under common
control of the father of the co-inventor of our Super Smart Card technology
(ABG), we maintain our executive offices in the premises of ABG at 7225
Bermuda Road, Suite C, Las Vegas, Nevada 89119. We utilize approximately 350
square feet of space, have access to a copy and fax machine and telephone
service. These services are provided to us at no charge. However ABG is
otherwise compensated for its administrative services under the ABG Agreement.
The ABG Agreement is summarized under the caption Certain Transactions and
Other Relationships below. Our office facilities in Las Vegas are adequate for
the purposes for which they are intended and provide sufficient capacity to
accommodate our short-term needs. 
 28




---



##### Table of Contents



ITEM 3. LEGAL PROCEEDINGS A. On
December 12, 2002, the SEC
commenced an Administrative Proceeding against us seeking, among
other things, to
interrupt public trading in our securities (the Proceeding). Pending a
decision by the Administrative Law Judge, we agreed with the SEC and the judge
to utilize our best efforts to prepare and file Quarterly Reports on Form
10-QSB for the six and nine months ended June 30, 2003 and September 30, 2003,
respectively; and our Annual Report on Form 10-KSB for the two fiscal years
ending December 31, 2003, on or before March 30, 2004. Towards this end, and on
November 13, 2003 and December 30, 2003, respectively, we filed our Quarterly
Reports on Form 10-QSB for the six and nine months ended June 30, 2003 and
September 30, 2003; and engaged Rosenberg Rich Baker Berman & Company of
Bridgewater, NJ to audit our financial statements for the two fiscal years
ending December 31, 2003. Notwithstanding the foregoing, and on March 4, 2004, Lillian A. McEwan,
Administrative Law Judge, published an Initial Decision in the Proceeding. In
the decision, it was ordered: (i) that the registration of our common stock be
revoked as a result of our violations of the periodic reporting requirements of
the Exchange Act; and (ii)
that the allegations in the Proceeding that we violated Section 12b-20 of the
Exchange Act be dismissed. In accordance with applicable rules, we appealed
the decision on March 24, 2004. B. On February 27, 2003, we filed the first of an expected series of both
state and federal lawsuits in connection with, among other things, the stream
of false and malicious allegations made by certain parties against us, our
President, and one of our licensed technologys co-inventors that led to the
since dismissed complaint brought by the U.S. Attorneys Office for the
Southern District of New York our President and such co-inventor. The initial complaint as filed by e-Smart is against named and unnamed
individuals for Conspiracy to Interfere with Prospective Economic Advantage,
Conspiracy to Slander and Defame, Conspiracy to Breach Fiduciary Duties and for
Punitive Damages. The Complaint seeks compensatory damages of one billion
dollars in addition to unspecified punitive damages against those that lied to
the U.S. Attorneys Office in an effort to discredit our products and
personnel. This litigation is in the early stages of discovery and while we believe
that we have a meritorious case, there can be no certainty as to the outcome of
same or of our ability to eventually collect any judgment(s) awarded, if any.
In light of our lack of capital, the expense of this litigation may have an
adverse effect on our ability to conduct our proposed smart card business. 29




---



##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS Neither during the fourth quarter of the fiscal year ended December 31,
2003, nor at any time since the December 18, 2000, Special Meeting of
Stockholders did the Registrant conduct a meeting of its stockholders pursuant
to definitive proxy materials under Regulation 14A under the Exchange Act. On December 1, 2003, however, IVI Smart and certain other stockholders
owning approximately 77% of our issued and outstanding shares adopted
resolutions by consent pursuant to Section 78.320 of the Nevada Revised
Statutes in lieu of a meeting of our shareholders. The resolutions (i)
re-elected a former director; (ii) elected two new directors; (iii) granted
to the board the power to select independent auditors; (iv) increased the
number of authorized shares of common stock from 200 million to 300 million;
(v) created the 2003 Long Term Incentive Plan wherein 75 million shares are
reserved for issuance; and (vi) granted 30 million options thereunder. The
approved actions will become operative 20 days after the mailing to our
stockholders of an Information Statement that must first be prepared and filed
with the SEC. A total of 30 million five year options were granted to our
Chief Executive Officer, one of the inventors of the Super Smart Card
technology and certain employees. The options are exercisable at a price equal
to 100% of the closing bid price for our common stock on December 1, 2003, or
$1.00 per share. 30




---



##### Table of Contents



PART II 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES Market Information Since late 1997, our common stock, our only class of trading equity
securities, has been traded in the over-the-counter market on the Pink Sheets
under the symbol ESMT. The following table sets forth the range of high and
low bid price information for the common stock for each fiscal quarter for the
past two fiscal years as reported by the Pink Sheets LLC. High and low bid
quotations represent prices between dealers without adjustment for retail
mark-ups, markdowns or commissions, may not necessarily represent actual
transactions, and have not been adjusted for any stock dividends or splits. HIGH BID
    
    LOW BIDYear Ended December 31, 2003:Fourth Quarter
    
    $
    1.75
    
    
    $
    1.00Third Quarter
    
    
    2.30
    
    
    
    0.30Second Quarter
    
    
    0.35
    
    
    
    0.10First Quarter
    
    
    0.25
    
    
    
    0.10Year Ended December 31, 2002:Fourth Quarter
    
    
    0.68
    
    
    
    0.40Third Quarter
    
    
    0.91
    
    
    
    0.35Second Quarter
    
    
    0.68
    
    
    
    0.40First Quarter
    
    
    0.80
    
    
    
    0.22
 Since our shares began trading in the over-the-counter market in the Pink
Sheets, the prices for our shares have fluctuated widely. There may be many
factors that explain these variations. We believe that such factors include (a)
the demand for our common stock, (b) the number of shares of our common stock
available for sale, (c) developments in the smart card industry, and (d)
changes in the performance of the stock market in general, among others. In recent years, the stock market has experienced extreme price and volume
fluctuations that have had a substantial effect on the market prices for many
small and emerging growth companies such as the registrant, which may be
unrelated to the operating performances of the specific companies. Some
companies that have experienced volatility in the market price of their stock
have been the targets of securities class action litigation. If we became the
target of securities class action litigation, it could result in substantial
costs and a diversion of managements attention and resources and have an
adverse effect on our ability to implement our 31




---



##### Table of Contents



business plan. In addition, holders of shares of our common stock could suffer
substantial losses as a result of fluctuations and declines in the market price
of our common stock. The trading of shares of our common stock is subject to limitations set
forth in Rule 1 Sg-9 of the Exchange Act. This rule imposes sales practice
requirements on broker-dealers who sell so-called penny stocks to persons
other than established customers, accredited investors or institutional
investors. For any transaction involving a penny stock, unless exempt, the
rules require that a broker or dealer: (a) approve a persons account for
transactions in penny stocks; and (b) receive from the investor a written
agreement to the transaction, setting forth the identity and quantity of the
penny stock to be purchased. In order to approve a persons account for
transactions in penny stocks, the broker or dealer must: (i) obtain financial
information and investment experience and objectives of the person; and (ii)
make a reasonable determination that the transactions in penny stocks are
suitable for that the person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks. The broker or dealer must also deliver, prior to
any transaction in a penny stock, a disclosure schedule relating to the penny
stock market, which, in highlight form, (x) sets forth the basis on which the
broker or dealer made the suitability determination; and (y) explains that the
broker or dealer received a signed, written agreement from the investor prior
to the transaction. Disclosure also has to be made about the risks of investing
in penny stocks in both public offerings and in secondary trading, and about
commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and the rights and
remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on
the limited market in penny stocks. Holders As of December 31, 2003, the approximate number of holders of record of
shares of our common stock, $.001 par value per share, our only class of
trading securities, was believed by management to be as follows: Title of Class
    
    Number of Record HoldersCommon Stock, $.001 par value
    
    
    115
 Registrant believes there are many shareholders whose securities are held
in street name with various brokerage houses. The exact number of shareholders
is unknown to us. Dividends To the best of managements knowledge and belief, we have never paid a
dividend; and no dividends are expected to be paid at least until we achieve a
full year of profitable operations. Until then, earnings, if any, will be
retained and used to finance the development and expansion of our business. 
 32




---



##### Table of Contents



ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Over the next 12 months we expect to continue our marketing and research
and development efforts with a view towards placing our first system in
operation and proving the viability of our Super Smart Card technology. While
there can be no assurance, we are looking forward to the sale and deployment of
two systems during this period encompassing an expected aggregate of
approximately 15 million Super Smart Cards. Additionally, based on our recently executed Cooperation agreement with
Guo Xin Well-tel Technology Co., Ltd., and EarthNetMedia Trading Co., Ltd., two
entities in the PRC, we have agreed to form a joint venture company in the PRC.
The purpose of the joint venture will be to obtain a business license allowing
it to effectuate mass distribution of the Super Smart Card and the operation
of the BVS2 throughout the PRC. Towards this end, we intend to seek an export
license from the U.S. Commerce Department to deliver our products and systems
to China. Given our history of having our prior PRC agreement rejected by the
U.S. Commerce Department, there can be no assurance that this license will be
forthcoming in the foreseeable future or at any time. Since present management assumed control in 2000, our only source of funds
has been private placements of our equity securities to accredited investors.
We presently are dependent upon private investors and expect this dependence to
continue until such time after the sale of our first system that we generate
sufficient income to cover our operating costs. As of the date of this Report,
we expect that this dependence will continue until at least the fourth quarter
of 2004; and based upon our current and planned 2004 rate of operating
commitments, that we will require approximately $2,500,000 in additional
subscriptions during this period. There can be no assurance that we will
continue to be able to rely upon this source of funds. This is especially true
in light of the Initial Decision of the Administrative Law Judge to revoke the
registration of our common stock and the possibility that, if out appeal of the
initial decision fails, the SEC will suspend or permanently halt the trading in
our common stock. Such an outcome would deprive investors in our securities of
a short term exit strategy and will increase the difficulty of continuing to
raise money in this fashion. This in turn would have a material adverse effect
on our ability to transition out of the development stage. Accordingly, on
March 23, 2004, we petitioned the SEC for a review of this Initial decision. Our ability to maintain what we believe to be the state-of-the-art quality
of our Super Smart Card technology is dependent upon our on going research and
development to improve our products functionality and durability and to reduce
their cost of manufacture. In addition, we are constantly trying to find and
develop new products that enhance the functionality of our BVS2 platform. This
research and development is an integral part of our operating commitments for
2004 and as such, is dependent upon funds from subscribers. Accordingly, it is
subject to the same risks enumerated in the preceding paragraph. We are constantly acquiring equipment in connection with our research and
development activities. Our planned 2004 budget is approximately $1,000,000
for such acquisitions, but could change depending on a number of factors, including upon our rate of
accomplishment. In connection with the anticipated sale of one or more
systems, we will need to lease additional space for an operations and testing
center for certain customers, we will need to lease a liaison office near
their offices as a condition of contract. We are taking over the research and
development center space in San Jose, California 33




---



##### Table of Contents



in 2004. Commencing January 1, 2004, we began the integration of the San Jose
research and development center and its staff and operations into our Company.
As a result, we plan to hire between six and ten new employees. In addition,
and commencing upon the first sale of one of our systems, we anticipate that:
(i) we will be required to retain an additional six to ten employees to perform
administrative, logistics and quality control functions; and (ii) we will need
to open a local liaison office with an administrative and clerical staff of
two or three persons. Off-Balance Sheet Arrangements The Company has no off-balance sheet
arrangements that have or are reasonably likely to have a current or future effect on the Companys
financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors. Forward Looking Statements: This discussion includes Forward-Looking Statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act. Any
statements that express or involve discussions with respect to predictions,
expectations, beliefs, plans, projections, objectives, assumptions or future
events or performance (often, but not always, using words or phrases such as
expects or does not expect, is expected, anticipates or does not
anticipate, plans, estimates or intends, or stating that certain
actions, events or results may, could, would, might or will be taken,
occur or be achieved) are not statements of historical fact and may be
considered forward looking statements. Such statements are included, among
other places in this Form 10-KSB, in the sections entitled Managements
Discussion and Analysis, and Description of Business. Forward-looking
statements are based on expectations, estimates and projections at the time the
statements are made that involve a number of risks and uncertainties which
could cause actual results or events to differ materially from those presently
anticipated. Although the Registrant believes that the expectations reflected
in such forward-looking statements are reasonable, the Registrant can give no
assurance that such expectations will prove to have been correct. 
 ITEM 7. FINANCIAL STATEMENTS The financial statements and supplementary data required by this item
appear as Exhibit 99.3 hereto. 
 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE On October 12, 2001, and as reported in our Form 8-K Current Report filed
on October 23, 2001, we engaged Bloom & Co., LLP, independent certified public
accountants (Bloom & Co.), as our independent certified public accountants
commencing with the audit of our financial statements for the fiscal year ended
December 31, 2000. Notwithstanding this engagement, Bloom & Co. never
commenced any work on our behalf. Accordingly, and as previously disclosed in
this Report, we have not filed audited financial statements since our audited
financial statements for the period January 1, 1999 (inception) to December 31,
1999, as prepared by G. Brad Beckstead, independent certified public
accountant. Bloom & Co., never prepared any auditors report with respect to any of
our financial statements. In addition, and to the best of present managements
knowledge and belief, during our two most recent fiscal years and the
subsequent interim periods preceding the change there 34




---



##### Table of Contents



has been no disagreements with Bloom & Co., on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures. Similarly, we and Bloom & Co. did not have substantive discussions
regarding the application of accounting principles to specified transactions,
either complete or proposed, or the type of audit opinion that might be
rendered on our financial statements. On
November 30, 2003, we engaged Rosenberg Rich Baker Berman &
Company of Bridgewater, New Jersey as our independent certified public
accountants to examine our financial statements for the two fiscal years ended
December 31, 2003. The change of accountants referenced herein was approved by our Board of
Directors and a majority of our stockholders. 
 ITEM 8-A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this Annual Report on Form 10-KSB,
Mary Grace, our principal executive officer and our principal financial officer
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act). Ms.
Grace concluded that our disclosure controls and procedures, which were
completely inadequate only months ago, had begun to show signs of substantial
improvement. Ms. Grace further concluded that within one additional operating
quarter, our disclosure controls and procedures are expected to be effective:
(i) in timely alerting the Company to material information required to be included in
our periodic SEC reports; and (ii) to ensure
that information required to be disclosed by us in reports that we intend to
file or submit under the Exchange Act are recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms. It should be noted that the design of any system
of controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of
how remote. Changes in Internal Controls We made no significant changes in our evolving internal controls or in
other factors that could significantly affect these controls including any
corrective actions with regard to significant deficiencies and material
weaknesses, subsequent to the date of the evaluation of those controls by our
Chief Executive and Chief Financial Officer. 35




---



##### Table of Contents



PART III 
 ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Directors and Executive Officers The following table sets forth: (1) names and ages of all persons who
presently are and who have been selected as our directors; (2) all positions
and offices with us held by each such person; (3) the term or office of each
person named as a director; and (4) any period during which he or she has
served as such: Duration and Date ofExpiration of
    
    Position & Office
    
    Age andName
    
    Present Term
    
    with the Company
    
    Director SinceMary A. Grace
    
    One year
12/13/04
    
    President, Chief
Executive Officer,
Chief Financial
Officer and
Director
    
    59
          3/01Tamio Saito
    
    One year
12/31/04
    
    Chief Technical
          Officer and Director
    
    56
          10/03Terry N. Christensen
    
    One year 
11/30/03
    
    Director
    
    62
          7/01F. Bo Zarnegin
    
    One year
11/30/03
    
    Director
    
        43
          3/01David C. Williams
    
    One year
12/31/04
    
    Director
    
    54
          3/01
 There is no understanding or arrangement between any directors or any
other person or persons pursuant to which such individual, was or is to be,
selected as one of our directors or as a nominee. Employment Agreements We have
    not entered into any written employment agreements with any of our executive
    officers except Mary A. Grace, with whom we executed a Compensation Settlement
    Agreement on November 15, 2003. Additional information concerning this
    agreement is set forth herein under the caption Certain Relationships and
    Related Transactions. Business Experience The following is a brief account of the experience of each of our
directors and executive officers: Mary
    A. Gracehas been one of our directors since March 2001, and has also
    served as our President, Chief Executive Officer and Chief Financial Officer since that date. Between
    April 2001 and October 2000, Ms. Grace has served in the same
    capacities for IVI -Smart Technologies, Inc., a privately owned Delaware corporation
    and our parent. Between December 1997 and the current date, Ms. Grace
    served as Chairman, President and Chief Executive Officer of Intermarket Ventures,
    Inc., a publicly owned Utah corporation and parent of IVI-Smart Technologies,
    Inc. From July 1996, until its acquisition in November 1996,
    Ms. Grace served as the founder and a director of China Hi Tech American
    Telecommunications Ltd., a corporation engaged in international telecommunications.
    Between 1995 and 1996, Ms. Grace was one 36




---



##### Table of Contents



of
    the founders and an executive officer of Asia American Tele-Communications
    Corporation, a corporation engaged in telephony infrastructure development
    in Sichuan Province of the Peoples Republic of China. This company was sold
    to Metromedia Asia Corporation, a subsidiary of Metromedia International Group,
    Inc., in 1997. Between 1993 and 1995, Ms. Grace was a founding partner
    and director of Asian Infrastructure Development Co., Ltd. and Solution Technologies,
    Ltd., corporations that became engaged in infrastructure development in the
    Peoples Republic of China. David
    C. Williamshas been one of our directors since March 2001. Mr. Williams,
    has been a practicing attorney since 1976. From 1976 until 1979 he was employed
    by the US Department of the Treasury. Subsequently he was engaged in the private
    practice of law in the state of New York with an emphasis on various aspects
    of international commercial transactions and international business operations.
    From 1988 through 2001, Mr. Williams was a founding and managing partner
    of the law firm, Neville, Petersen & Williams, a New York law firm specialized
    in international transactions. He has substantial knowledge of U.S. and foreign
    import and export controls and requirements. He has assisted clients in establishing
    foreign operations in various industries including the textile, apparel, automotive,
    telecommunication, electronic and retailing industries. He has personally
    negotiated joint venture agreements with foreign partners and structured domestic
    and foreign operations to comply with governmental requirements and to minimize
    taxes and duties. He has substantial experience in all aspects of international
    commercial transactions including logistics, finance and intellectual property
    rights. Mr. Williams received a Bachelor of Arts degree from Union College
    in 1973, and a Juris Doctor degree from Albany Law School, Union University
    School of Law in 1976. Tamio
    Saitohas been one of our directors since October 2003, and will serve
    only until the election of the next director to our board. Mr. Saito also
    served and continues to serve as our Chief Technical Officer, since inception.
    Mr. Saito is also the Chief Technical Officer of our parent, Intermarket
    Ventures, Inc., and its affiliates. Mr. Saito joined the group with over
    21 years of experience at Toshiba where he served in various positions,
    including Marketing Manager in the Semiconductor Division, Group Leader and
    Senior Research Scientist in the R&D Center as well as Manager of Technology
    for the Computer Division. Mr. Saito was the leading inventor at Toshiba
    with over 400 inventions and 50 US patents. Mr. Saitos inventions
    include, among other things: the Smart Card, the Thermal Printer, the 3-D
    Display, the 5th generation CT Scanner, the 3-D CT Scanner, the Image Sensor,
    Amorphous Silicon TFT/Sensor devices, Poly-Silicon TFT devices, the Digital
    Camera, Ti etching, Plasma Deposition Equipment, Switching Regulator, and
    Liquid Cooling System. Mr. Saito pioneered Sub-Nano-Second Signal Propagation,
    reflection theory and Fractal-Entropy interconnection theory in MPU, Memory,
    PCB and computers and he performed groundbreaking R&D work in high-end
    supercomputer technology including high speed circuitry analysis and Gallium
    Arsenic cross talk analysis and in semiconductor R&D work including simultaneous
    noise analysis. Mr. Saito has published over 50 papers at IEEE and other
    conferences and has published over 24 industrial professional books. Mr. Saito
    has a degree in Physics from Tohoku University in Japan. Terry N. Christensenhas been one of our directors since July 2001. In
1969, Christensen joined the Los Angeles law firm, Wyman, Bautzer, Finell,
Rothman & Kuchel, as an associate. In 1971, Christensen became a partner and
during the period, 1985-1986, Christensen served as the managing partner of the
firm. In 1987, Christensen left the law firm and became President of 37




---



##### Table of Contents



Kirk
    Kerkorians wholly owned company, Tracinda Corporation. Tracinda owned
    the majority interest in MGM/UA Communications and while Christensen was President,
    Tracinda entered into a number of transactions including the formation of
    MGM Grand Air and the planning and formation of the new MGM Grand, Inc. In
    May, 1988, Christensen formed the law firm, now known as Christensen, Miller,
    Fink, Jacobs, Glaser, Weil & Shapiro, LLP. Starting with 14 attorneys,
    the firm has grown to 120 attorneys with departments in all areas normally
    associated with a general business practice. Christensen has been managing
    partner of the firm since its inception. Christensens other activities
    include serving on the board of directors of four public companies, including
    Mr. Kerkorians MGM Mirage, Inc. Christensen received his Bachelor
    of Arts Degree, with honors, from Stanford University in 1962 and his Juris
    Doctorate from the University of California in 1965. At USC, he served on
    the Law Review and graduated Order of the Coif. After law school, Christensen
    went on active duty in the Marine Corps. He rose to the rank of Captain and
    served primarily in the Judge Advocate General Corps with the Fifth Marine
    Division. Mr. Christensen became ineligible for re-election to our Board in
    December, 2003, as he failed to attend any board meetings during 2003. F. Bo Zarneginhas been
one of our directors since March of 2001. Mr.
Zarnegin began his career as a real estate developer in West Los Angeles and
Beverly Hills. Over time, Mr. Zarnegin was able to acquire parcels of land and
functionally obsolete properties and turn these properties into lucrative
investments. Among his many accomplishments, Mr. Zarnegin together with his
family, developed and own the Peninsula Hotel in Beverly Hills, one of fewer
than a handful of Five Star, Five Diamond Hotels in the United States. Mr.
Zarnegin became ineligible for re-election to our Board in December, 2003, as
he failed to attend any Board meetings during 2003. Directorships Except as disclosed, each of our directors has indicated to us that he is
not presently a director in any other company with a class of securities
registered pursuant to Section 12 of the Exchange Act or subject to the
requirements of Section 15(d) of such act or any investment company registered
under the Investment Company Act of 1940. Certain Significant Employees We do not presently employ any person as a significant employee who is not
an executive officer but who makes or is expected to make a significant
contribution to our business. Notwithstanding the foregoing, Mr. Wayne Drizin
and Mr. Takashi Aida, both of whom are consultants to our Company, have and
continue to make a significant contributions to our business, especially in
connection with the developments that have taken place since the end of 2003.
The following is brief account of the experience of Mr. Drizin and Mr. Aida.
Additional information concerning our business relationship with Mr. Drizin is
set forth under Item 12. Certain Relationships and Related Transactions. Wayne
    Drizin. In December 1996, IVI, the parent of IVI Smart,
    our parent, entered into a five year business, marketing, technology and corporate
    finance consulting and advisory agreement with Emerald Sea Investments S.A.,
    a non-affiliated corporation, that provides, among other terms, that Mr. Drizin
    perform various services to IVI 38




---



##### Table of Contents



Since that time, Mr. Drizin has served in a number of different capacities for
IVI and its affiliates and subsidiaries, including but not limited to, Head of
Business Development, Chief Negotiator, System Architect and Chief
Representative. In addition, Mr. Drizin is the co-inventor of the Super Smart
Card technology and the principal creator of the BVS2 platform and related
applications. This agreement has been transferred to Mr. Drizin and extended
for an additional five years and now runs through 2006. Prior thereto since
1990, Mr. Drizin has been a business consultant providing advice and
relationships on a worldwide basis to diverse companies seeking technical,
financial, structuring and business advice across a broad range of industries,
including but not limited to telecommunications, manufacturing, power
generation and finance. In 1996, Mr. Drizin was a founder of Telpac
International, Ltd., then, an international telecommunications company. In
1982, Mr. Drizin was one of the founders of Welfin S.A., a Swiss based,
merchant bank, specialized in the without recourse financing of exports on a
global basis. Mr. Drizin served as Welfins managing director until 1990.
While with Welfin S.A., Mr. Drizin expanded its business activities from merely
financing to include shipping and trading (physical commodities). By combining
these three enterprises under one umbrella and operating them as an integrated
business, Mr. Drizin caused Welfin S.A. to rapidly grow into a highly
profitable, multinational organization that maintained offices in nine
countries. In 1988, Mr. Drizin orchestrated the sale of Welfin S.A. to a
Swiss-based multi-national banking group indirectly wholly owned by the Chalabi
Family including Mr. Ahmed Chalabi (a prominent member of the Iraqi National
Congress). In September of 2000, the U.S. Attorneys Office in Phoenix, Arizona
charged Mr. Drizin with six counts of wire fraud in connection with certain
share transactions involving the predecessors of IVI that allegedly took place
during 1996 and 1997. In October 2003, and after a trial by jury, Mr. Drizin
was found not guilty of four counts and found guilty of two counts of wire
fraud. Legal counsel for Mr. Drizin is filing an appeal and advised us that
based on his review of the governments case and the evidence presented at
trial, he anticipates that the conviction will be reversed. Takashi Aida has been employed by our affiliate, Big Bang
Technologies, Inc. (BBT), since 2000. Prior to that since 1990, Mr. Aida was
employed by a number of companies in Japan including such firms as Nikon
Computer Control and Hitachi Software Development Co. Ltd. In the course of
his employment with BBT, Mr. Aida was assigned to the e-Smart Technologies,
Inc. project as a software designer. Mr. Aida is a co-inventor of the
Companys technology, having made a number of inventions that have been
incorporated into the Super Smart Card and the BVS2 platform and for which
the Company has patents pending. Advisory Board We have formed an advisory board to aid, assist and advise our Board of
Directors regarding the smart card industry, technological developments, and
related matters. The committee is currently made up of four members. No member
of the Advisory Board is presently receiving any monetary compensation from us.
However, and as indicated herein under Item 10, Executive Compensation, we have
granted options to members of the Advisory Board under the 2003 Long Term Plan.
The following is a brief summary of the experience of the members of the
Advisory Board. Thomas J. Volpe is our Advisory Board Chairman. Mr. Volpe
until recently was Senior Vice President, Financial Operations, of The
Interpublic Group of Companies, Inc., Vice President and Treasurer of
Colgate-Palmolive Company and a Principal of Deloitte, Haskins & Sells. At
Interpublic, Mr. Volpe was responsible for the worldwide treasury management of
this $7 billion company, including financial analysis, budgeting, approval of
all investments, and the financing of mergers and acquisitions worldwide. He
performed corporate controller functions, and conducted comprehensive strategic
analyses and plans for the successful integration of acquired companies into
the parent company. Mr. Volpe was in charge of Interpublics global enterprise
Y2K security risk analysis, as well as the implementation and coordination of
the Y2K security protection needed throughout the companys operations in 160
countries. During his tenure at Colgate, Mr. Volpe forged domestic and
international banking relationships, negotiated unique global credit and
financing arrangements, supervised an investment portfolio of $500 million,
restructured $750 million of pension assets, and designed an international risk
program constituting captive insurance operations including safety, security
and loss prevention. Eugene P. Beard recently retired as Vice Chairman, Finance and
Operations, of The Interpublic Group of Companies, Inc., a worldwide
advertising and marketing communications group with 400 offices in 120
countries, over 50,000 employees and revenues of more than $6 billion. A
former Interpublic Group board member, and Chairman of its Finance Committee,
Mr. Beards retirement is effective at the end of 2003. Mr. Beard also serves
on the boards of directors of Brown Brothers Harriman; Bessemer Trust Company;
Mattel & Company and the Mattel Foundation; as well as MARC USA. As a member
of the Advisory Council for Ethics and the Professions at Harvards John F.
Kennedy School of Government, Mr. Beard established the Beard Graduate and
Faculty Fellowship programs for Ethics in the Professions. He also founded the
Beard Center for Leadership and Ethics in Business at Pittsburghs Duquesne
University. Mr. Beard has been featured as an expert commentator and profiled
in a number of media outlets, including Global Finances CFO Superstars,
Investor Relations, Treasury Magazine, Forbes, Corporate Finance, Institutional
Investor and BusinessWeek. He has also appeared on CNBC News and PBSs Nightly
Business Report. Ronald E. Blaylock is the founder, Chairman and Chief
Executive Officer of Blaylock & Partners, L.P, a New York City based financial
service firm
offering institutions expertise in equity sales and trading, asset
management, equity research, fixed income sales and trading, and investment
banking. The firm also has offices in San Francisco, Austin, Chicago and
Atlanta. Mr. Blaylock, who earned his MBA at the New York University Stern
School of Business, held senior management positions with Paine Webber Group
and CitiGroup before launching Blaylock & Partners in 1993. In his 20-year
career on Wall Street, Mr. Blaylock has worked with a diverse range of
corporate clients and institutional investors. As CEO of Blaylock & Partners,
his leadership resulted in a number of unique industry achievements including
being listed as the Corporate Capital Raiser of the Year by Corporate Finance
Magazine in 1999.In 2003, Black Enterprise Magazine listed the firm in the
top women/minority investment banks. In addition, the firm was ranked among
the top 20 investment banking firms in the United States for underwriting
investment grade debt for 1999, 2000 and 2001. Blaylock also has a strong
presence in the equity markets having been a co-manager of the four largest
U.S. IPOs to date. Blaylock & Partners is also well regarded for its
experience and highly ranked research analysts. Mr. Blaylock earned his BS at
Georgetown University where he was a member of the first NCAA Final Four
basketball team. He serves on the Board for the National Association of
Basketball Coaches, the New York University Board of Trustees, and serves on
the board of the American General Life Insurance Company of New York, Radio
One, and W.R. Berkley. His other charitable board work includes the American
Ballet Theatre, the Inner-City Scholarship Fund, and Prep for Prep. Elliot H. Cole is a senior partner with the firm of Patton
Boggs, LLP (Washington, DC), Mr. Cole has practiced corporate law in the
nations capitol for over 40 years, more than 30 of those years as a partner at
Patton Boggs. Patton Boggs, through nearly four decades of practice, has
established a reputation for cutting-edge advocacy by working closely with the
US Congress and regulatory agencies in Washington. Patton Boggs, for example,
has participated in the formation of every major multilateral trade agreement
considered by Congress. The firm is a leader in merging public policy expertise
getting results in both Washington and throughout the world. The firm is led by
partners with extensive backgrounds in government service and with strong ties
to both major political parties in order to be effective on Capitol Hill. In
addition, Mr. Coles expertise includes the representation of early-stage
companies. As a counselor of start-ups through mezzanine and later-stage
financing, he assists with bringing along to maturity companies in a wide range
of businesses. His broad-based contacts with financiers and investors have
provided capital and management assistance to a number of firms clients over
the years. Mr. Cole serves on the boards of numerous business, community and
social organizations, and has been a trustee of his alma mater, Boston
University, for over 20 years. John J. DeLucca is currently Executive Vice President and
CFO or the REL Consultancy Group, a private international consulting company.
Previously, he served as Executive Vice President, Finance and Administration,
and CFO of Coty Inc., where he was responsible for all global finance and
administration operations, including accounting, strategic planning, corporate
development, all treasury, audit and control functions, legal information
technology systems, tax and administration.
Prior to that he served as RJR Nabisco, Inc.s Senior Vice President and
Treasurer where he was responsible for all corporate finance and treasury
activities, including capital markets, banking, derivatives/swaps, foreign
exchange, risk management, pension fund management and cash management. Prior
thereto, he served as Managing Director and CFO of Hascoe & Associates,
President & CFO of the Lexington Group and Sr. VP, Finance & Managing Director
of The Trump Group. Mr. DeLucca is a member of the boards of directors and
serves as Chairman of the Audit Committees of the Elliott Company, Horizon
Natural Resources and ITC Deltacom. He is also currently on the board of
directors of Enzo Biochem, Inc and formerly a member of the boards of directors
and Chairman of the Audit Committee of Edison Controls Corporation. Former
directorships include Kash n Karry (sold to Food Lion); Natures Food Centers
(sold to General Nutrition Centers); Emperor Clock Company; and RKO Century
Warner Theaters (sold to Cinema Odeon). Mr. DeLucca is active as a guest
speaker/lecturer for many financial institutions, including Merrill Lynch, Bank of
America, Deutsche Bank, Sumitomo Bank, Ltd., Banque Paribas, Canadian Imperial
Bank of Commerce, Pace University, Standard & Poors and NYU Stern School of
Business. Family Relationships No family relationship exists between any of our directors or executive
offices. Involvement in Certain Legal Proceedings Except as indicated above, no event listed in Sub-paragraphs (1) through
(4) of Subparagraph (d) of Item 401 of Regulation S-B, has occurred with
respect to any of our present 39
    Table of Contents  executive officers or directors or any nominee for director during the past
five years which is material to an evaluation of the ability or integrity of
such director or officer. Compliance with Section 16(a) of the Exchange Act Section 16(a) of the Exchange Act, as amended, requires our executive
officers and directors and persons who own more than 10% of a registered class
of our equity securities, to file with the SEC initial statements of beneficial
ownership, reports of changes in ownership and annual reports concerning their
ownership, of common stock and other of our equity securities on Forms 3, 4,
and 5, respectively. Executive officers, directors and greater than 10%
shareholders are required by SEC regulations to furnish us with copies of all
Section 16(a) reports they file. To the best of our knowledge, none of our
executive officers or directors have complied with all Section 16(a) filing
requirements applicable to them during our most recent fiscal year. However,
and in connection with our program to bring ourselves current, each of our
directors, executive officers and 5% stockholders have agreed to make all
requisite Exchange Act filings as promptly as possible. 
 Audit Committee Financial Expert During 2002 and 2003, the Company did
not maintain an Audit Committee because we had an insufficient number of
qualified outside directors. Moreover, the Company had not designated an Audit Committee
Financial Expert. Until the Company is able to obtain directors and officer liability insurance for its board
of directors, it is unlikely that we will be able to attract the qualified persons necessary to fulfill these
functions. The Chairman of our advisory board, Mr. Thomas Volpe, has already announced that he is ready to join
the Companys board as soon as director and officer liability insurance is obtained. Code of Ethics The Company has not yet adopted a Code of Ethic that applies to its principle executive officer,
principal financial officer, principle accounting officer or controller, or persons performing
similar functions, but intends to do so in the near future. ITEM 10. EXECUTIVE COMPENSATION Aggregate Compensation Covered During the three fiscal years ended December 31, 2003, the aggregate
compensation paid to, accrued or set aside for any of our executive officers or
directors was $300,000. Summary Compensation Table Summary Compensation Table Long Term CompensationAnnual Compensation
    
    
    
    
    
    Awards
    
    PaymentsName and Position
    
    Year
    
    Salary
    
    Bonuses
    
    Other
    
    
    
    
    
    Stock
    
    Options
    
    LTIP
    
    OtherMary A. Grace,
    
    
    2001
    
    
    $
    
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    President, CEO,
    
    
    2002
    
    
    
    
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    CFO and Director
    
    
    2003
    
    
    
    300,000
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tamio Saito, CTO,
    
    
    2001
    
    
    
    
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    and Director
    
    
    2002
    
    
    
    
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    David Williams,
    
    
    2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Director
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 40
    Table of Contents  Long Term CompensationAnnual Compensation
    
    
    
    
    
    Awards
    
    PaymentsName and Position
    
    Year
    
    Salary
    
    Bonuses
    
    Other
    
    
    
    
    
    Stock
    
    Options
    
    LTIP
    
    OtherThomas J. Volpe,
    
    
    2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Advisory Board
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    member
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Terry N.
Christensen,
    
    
    2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Director
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    F. Bo Zarnegin,
    
    
    2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Director
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Totals
    
    
    2001
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   (1) Does not include a settlement payment of $450,000 referenced in a
November 15, 2003, written Compensation Settlement Agreement with Mary A.
Grace, our President, Chief Executive Officer and Chief Financial Officer. Pursuant to this agreement,
we agreed to pay Ms. Grace a salary of $250,000 per year commencing on January
1, 2004. In consideration for Ms. Graces releasing us from our obligation to
accrue her former salary of $250,000 per year net of approximately $300,000 of
expenses paid on Ms. Graces behalf during the period or $750,000 for the three
years ending December 31, 2003, we agreed to pay to Ms. Grace a preferred
distribution of 50% of future profits limited to $450,000. In addition, and in
consideration for our return to Ms. Grace of certain of her marketable
securities, Ms. Grace released us from any prior obligations under a
contemplated agreement to purchase such securities. Finally, we agreed that
the approximate $300,000 in expenses we paid on Ms. Graces behalf would be
deemed to be a loan and deductible only from the amount she is entitled to
receive under the Compensation Settlement Agreement up to a maximum of $100,000
per year, commencing in the first year following the year in which we first
receive sufficient income from operations. (2) Does not include an aggregate of $730,750 and $310,000, paid to Big Bang
Technologies, Inc., a California corporation controlled by and under common
control of Tamio Saito (BBT), respectively, during the two fiscal years ended
December 31, 2003. The payments were made pursuant to a Research and
Development Services Agreement dated May 29, 2003 (the BBT Agreement).
Additional information concerning the BBT Agreement is set forth herein under the caption Certain
Relationships and Related Transactions. Option/SAR Grant Table On February 13, 2002, our Board of Directors granted 58,500,000 stock
options to our officers, directors and three consultants. An aggregate of
30,000,000 options were granted to officers and directors. The options are
exercisable at a price equal to 100% of the closing bid 41
    Table of Contents  price for our common
stock on February 13, 2002, or $.41 per share. Fifty percent of the options
vested and became exercisable one year after grant, thirty percent vested and
became exercisable two years after grant (i.e., after February 12, 2004), and
the balance vest and become exercisable after February 12, 2005. The options
granted to Mary Grace were unanimously approved by Messrs. Saito and Williams;
and the options granted to Tamio Saito were approved by Mary Grace and David
Williams. The following table contains information concerning the options granted by
us on February 13, 2002: Option/SAR Grants During 2002 NUMBER OF
    
    % OF TOTALSECURITIES
    
    OPTIONS/SARSUNDERLYING
    
    GRANTED TO
    
    EXERCISE OROPTIONS/SARS
    
    EMPLOYEES IN
    
    BASE PRICE
    
    EXPIRATIONNAME
    
    GRANTED
    
    FISCAL YEARS
    
    ($/SH)
    
    DATEMary A. Grace
    
    
    19,500,000
    
    
    
    33
    %
    
    $
    .41
    
    
    
    2/13/07Tamio Saito
    
    
    10,500,000
    
    
    
    18
    %
    
    $
    .41
    
    
    
    2/13/07Wayne Drizin
    
    
    24,500,000
    
    
    
    42
    %
    
    $
    .41
    
    
    
    2/13/07Roger M. Rosenberg
    
    
    2,500,000
    
    
    
    4
    %
    
    $
    .41
    
    
    
    2/13/07George Sobol
    
    
    2,000,000
    
    
    
    3
    %
    
    $
    .41
    
    
    
    2/13/07
 On December 1, 2003, the holders of 133,765,052 shares of our common
stock, $.001 par value per share, out of 168,298,239 shares issued and
outstanding and entitled to vote, representing an approximate 79% majority of
all of our outstanding shares (the 2003 Majority Stockholders) adopted
resolutions by consent pursuant to Section 78.320 of the Nevada Revised
Statutes in lieu of a meeting of our stockholders. One of the resolutions was
the approval of the 2003 Long Term Incentive Plan (the 2003 Plan) wherein an
aggregate of 75,000,000 shares of our common stock will be reserved for
issuance of options, stock appreciation rights (SARs), dividend equivalents,
restricted stock, performance shares and units (collectively referred to as
Awards) under the 2003 Plan. On various dates between February 11, 2003, and September 26, 2003, we
issued options to purchase an aggregate of 7,500,000 shares to the five members
of our Advisory Board, two attorneys and two consultants. The exercise prices
were $.25 with respect to 5,000,000 options, $.50 with respect to 2,000,000
options and $.75 with respect to the remaining 500,000 options. All but
1,000,000 of the options vested upon grant. Of the remaining options, 100,000
vested on grant, 200,000 vested on February 12, 2004, 300,000 vest on February
12, 2005, and the balance vest on February 12, 2006. December 1, 2003, our Board of Directors granted 30,550,000 Incentive
Stock Options under the Plan. The options are exercisable at a price equal to
100% of the closing bid price for our common stock on December 1, 2003, or
$1.00 per share. None of the options will vest or 42
    Table of Contents  become exercisable until the
20th day after we file an Information Statement with the SEC, comply with any
and all comments raised by the SEC, and mail the Information Statement to our
stockholders. Accordingly, there can be no assurance that any of the options
will ever become exercisable. The following table contains information concerning the options granted by
us under the 2003 Plan: Option/SAR Grants Under The Plan During 2003 NUMBER OF
    
    % OF TOTALSECURITIES
    
    OPTIONS/SARSUNDERLYING
    
    GRANTED TO
    
    EXERCISE OROPTIONS/SARS
    
    EMPLOYEES IN
    
    BASE PRICE
    
    EXPIRATIONNAME
    
    GRANTED
    
    FISCAL YEARS
    
    ($/SH)
    
    DATEWayne Drizin
    
    
    6,925,000
    
    
    
    23
    %
    
    $
    1.00
    
    
    
    12/1/08Mary A. Grace
    
    
    12,075,000
    (1)
    
    
    39
    %
    
    $
    1.00
    
    
    
    12/1/08Tamio Saito
    
    
    9,500,000
    
    
    
    32
    %
    
    $
    1.00
    
    
    
    12/1/08Three employees
    
    
    1,000,000
    
    
    
    3
    %
    
    $
    1.00
    
    
    
    12/1/08Anthony R. Russo
    
    
    1,000,000
    
    
    
    3
    %
    
    $
    1.00
    
    
    
    12/1/08Media Consultants
    
    
    50,000
    
    
    
    
    
    
    $
    1.00
    
    
    
    12/1/08
   (1) Pursuant to a November 15, 2003, Compensation Settlement Agreement with
Mary A. Grace, our President, Chief Executive Officer and Chief Financial Officer, Ms. Grace is only
entitled to exercise 3,900,000 options per year during the five-year term of
the agreement and to accumulate non-exercised Options. We have not granted SARs or any other Awards under the 2003 Plan. Aggregate Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table During the two fiscal years ended December 31, 2003, no stock options or
freestanding SARs were exercised. Long-Term Incentive Plans  Awards in Last Two Fiscal Years Performance
    
    Estimated Futureor other
    
    Payouts Under Non-StockPeriod Until
    
    Price-Based Plans(#)MaturationName
    
    Number of Shares
    
    or Payout
    
    Threshold
    
    Target
    
    MaximumMary A. Grace
    
    
    31,575,000
    
    
    5 Years
    
    
    0
    
    
    
    0
    
    
    
    0Wayne Drizin
    
    
    31,425,000
    
    
    5 Years
    
    
    0
    
    
    
    0
    
    
    
    0
 43
    Table of Contents  Performance
    
    Estimated Futureor other
    
    Payouts Under Non-StockPeriod Until
    
    Price-Based Plans(#)MaturationName
    
    Number of Shares
    
    or Payout
    
    Threshold
    
    Target
    
    MaximumTamio Saito
    
    
    20,000,000
    
    
    5 Years
    
    
    0
    
    
    
    0
    
    
    
    0Three Employees
    
    
    1,000,000
    
    
    5 Years
    
    
    0
    
    
    
    0
    
    
    
    0Four Advisory
Board
Members
    
    
    500,000
    
    
    5 Years
    
    
    0
    
    
    
    0
    
    
    
    0Two Attorneys
    
    
    1,500,000
    
    
    5 Years
    
    
    0
    
    
    
    0
    
    
    
    0Three Consultants
    
    
    7,000,000
    
    
    5 Years
    
    
    0
    
    
    
    0
    
    
    
    0Media Consultants
    
    
    50,000
    
    
    5 Years
    
    
    0
    
    
    
    0
    
    
    
    0
 Warrants During the two fiscal years ended December 31, 2003, we issued warrants to
purchase an aggregate of 1,096,701 shares of our common stock at between $.50
and $1.00 per share. All of the warrants are fully vested and expire on
February 10, 2006. No warrants have been exercised or cancelled, and no
warrants were issued to any of our officers, directors or employees. Compensation of Directors On various dates between February 11 and September 26, 2003, the Company
verbally agreed to compensate each of our Advisory Board members at the rate of
$30,000 per year payable in shares of our common stock. The exercise price of
our initial grants were arbitrarily determined by the Registrants Board of
Directors. However, the exercise price of all future options will be based on
our market value on the date of grant. Except for the foregoing and pursuant
to the Compensation Settlement Agreement with Mary Grace, none of our directors
received any compensation pursuant to any standard or other arrangement. Employment Contracts and Termination of Employment, and Change in Control
Arrangements Except for our President, Mary A. Grace, none of our executive officers
was employed pursuant to the terms of an employment agreement with us. 
 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS Security Ownership of Certain Beneficial Owner The information is furnished as of December 31, 2003, as to the number of
shares of our Common Stock, $.001 par value per share, owned beneficially, or
known by us to own beneficially, more than 5% of any class of such security: 44
    Table of Contents  Name and Address
    
    Amount and Natureof Beneficial Owner
    
    of Beneficial Ownership
    
    Percentage of ClassIVI Smart Technologies, Inc.
7225 Bermuda Road, Suite C
Las Vegas, Nevada 89119
    
    
    70,000,000
    
    
    
    42
    (1)Intermarket Ventures, Inc.
7225 Bermuda Road, Suite C
Las Vegas, Nevada 89119
    
    
    58,590,052
    
    
    
    35
    (1)Wayne Drizin
7225 Bermuda Road, Suite C
Las Vegas, Nevada 89119
    
    
    31,575,000
    (2)
    
    
    19
    (2)Mary A. Grace
117 East 57th Street, Apt 24G
New York, NY 10022..
    
    
    34,150,000
    (3)
    
    
    21
    (3)Tamio Saito
1810 Old Oakland Road, #F
San Jose, California 95131
    
    
    22,500,000
    (4)
    
    
    13
    (4)
   (1) Does not include options granted to management and the co-inventor of
our Super Smart Card technology to acquire an aggregate of 85,000,000 shares
of our common stock granted on February 13, 2002 and December 1, 2003. As
previously indicated, an aggregate of 30,000,000 of these options will not vest
or become exercisable until the 20th day after an Information Statement has
been sent to stockholders. (2) Includes options to acquire an aggregate of 31,425,000 shares of our
common stock granted on February 13, 2002 and December 1, 2003. As previously
indicated, an aggregate of 6,925,000 of these options will not vest or become
exercisable until the 20th day after an Information Statement has been sent to
stockholders. (3) Includes options to acquire an aggregate of 31,575,000 shares of our
common stock granted on February 13, 2002 and December 1, 2003. As previously
indicated, an aggregate of 12,075,000 of these options will not vest or become
exercisable until the 20th day after an Information Statement has been sent to
stockholders. (4) Includes options to acquire an aggregate of 20,000,000 shares of our
common stock granted on February 13, 2002 and December 1, 2003. As previously
indicated, an aggregate of 9,500,000 of these options will not vest or become
exercisable until the 20th day after an Information Statement has been sent to
stockholders. Security Ownership of Management The following information is furnished as of December 31, 2003, as to the
number of shares of our Common Stock, $.001 par value per share owned
beneficially by each of our executive officers and directors and by all of our
executive officers and directors as a group: 45
    Table of Contents  Name and Address
    
    Amount and Natureof Beneficial Owner
    
    of Beneficial Ownership
    
    Percentage of ClassMary A. Grace
117 East 57th Street, Apt 24G
New York, NY 10022
    
    
    2,675,000
    (1)
    
    
    1.5
    (2)Tamio Saito
1810 Old Oakland Road, #F
San Jose, California 95131
    
    
    2,500,000
    (3)
    
    
    1.5
    (3)David C. Williams
8 Brook Lane
Courtland Manor, NY 10567
    
    
    300,000
    
    
    
    Terry N. Christensen
10250 Constellation Blvd.
19th Floor
Los Angeles, CA 90076
    
    
    
    
    
    
    F. Bo Zarnegin
9882 S. Santa Monica Blvd.
Beverly Hills, CA 90211
    
    
    1,300,000
    (4)
    
    
    All Officers and Directors as
a Group of five persons
    
    
    5,475,000
    
    
    
    3
    (2)(3)(4)
   (1) Does not include: (i) an aggregate of 1,100,000 shares owned of record by
James Michael Phelan; or (ii) an aggregate of 1,300,000 shares owned of record
by John Daniel Phelan, each adult sons of Mary Grace, neither of whom reside
with her; or (iii) an aggregate of 200,000 shares owned of record by David N.
Phelan, Ms. Graces former spouse from whom she has been divorced since 1975.
Ms. Grace disclaims beneficial ownership of the shares owned by her former
husband and her adult children. (2) Does not include options to acquire an aggregate of 29,000,000 shares of
our common stock granted on February 13, 2002 and December 1, 2003. As
previously indicated, an aggregate of 9,500,000 of these options will not vest
or become exercisable until the 20th day after an Information Statement has
been sent to stockholders. (3) Does not include options to acquire an aggregate of 20,000,000 shares of
our common stock granted on February 13, 2002 and December 1, 2003. As
previously indicated, an aggregate of 9,500,000 of these options will not vest
or become exercisable until the 20th day after an Information Statement has
been sent to stockholders. (4) Comprised of shares owned of record by the F. Bo Zarnegin Family Trust,
of which Mr. Zarnegin serves as the Trustee. Mr. Zarnegin disclaims
beneficial ownership of the shares owned by the F. Bo Zarnegin Family Trust. 46
    Table of Contents  A person is deemed to be the beneficial owner of securities that can be
acquired by such a person within 60 days from Record Date, upon exercise of
options, warrants or convertible securities. Each beneficial owners percentage
ownership is determined by assuming that options, warrants and convertible
securities that are held by such a person (but not those held by any other
person) and are exercisable within 60 days from that date have been exercised.
Unless otherwise noted, we believe that all persons named in the table have
sole voting and investment power with respect to all shares of our voting
securities beneficially owned by them. Wayne Drizin, the co-inventor of our Super Smart Card technology,
is a
consultant and not a member of our management team. Notwithstanding the
foregoing, the following is information concerning Mr. Drizins equity
ownership in our Company: Name and Address
    
    Amount and Natureof Beneficial Owner
    
    of Beneficial Ownership
    
    Percentage of ClassWayne Drizin
7225 Bermuda Road, Suite C
Las Vegas, Nevada 89119
    
    
    150,000
    (1)
    
    
    
    (1)
   (1) Does not include options to acquire an aggregate of 31,425,000 shares of
our common stock granted on February 13, 2002 and December 1, 2003. As
previously indicated, an aggregate of 6,925,000 of these options will not vest
or become exercisable until the 20th day after an Information Statement has
been sent to stockholders. Changes in Control There have been no changes in control of the Company during the two years
ended December 31, 2003. Securities Authorized for Issuance Under Equity Compensation Plans The following table sets forth information as of December 31, 2003, with
respect to compensation plans (including individual compensation arrangements)
under which our common stock is authorized for issuance, aggregated as follows:
(i) all compensation plans previously approved by security holders; and (ii)
all compensation plans not previously approved by security holders. Equity Compensation Plan Information NUMBER OF
    
    
    
    
    
    NUMBER OF SECURITIESSECURITIES TO BE
    
    
    
    
    
    REMAINING AVAILABLE FORISSUED UPON
    
    WEIGHTED AVERAGE
    
    FUTURE ISSUANCES UNDEREXERCISE OF
    
    EXERCISE PRICE OF
    
    EQUITY COMPENSATIONOUTSTANDING
    
    OUTSTANDING OPTIONS,
    
    PLANS (EXCLUDINGOPTIONS, WARRANTS,
    
    WARRANTS, AND
    
    SECURITIES REFLECTED INAND RIGHTS(b)
    
    RIGHTS(b)
    
    COLUMN (a)(c)Equity compensation
plans approved by
security holders
    
    
    85,000,000
    
    
    $
    .62
    
    
    
    45,000,000
 47
    Table of Contents  ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Approximately 42% of our common shares are owned by IVI Smart (the Licensor)
which is the sole owner of all of the Super Smart Card technology licensed to
us in November 2000 for a 20 year term for commercialization throughout Asia
and the United States. Mary A. Grace, our President, Chief Executive
Officer and Chief Financial Officer, is a director, executive officer and principal stockholder of IVI.
Tamio Saito, our Chief Technology Officer, is also an executive officer and
principal stockholder of IVI. The biometric fingerprint sensor incorporated in the Super Smart Card was
developed by BioSensor LLC, a Hawaiian limited liability company (BioSensor),
pursuant to a Confidential Technology Assignment and License Agreement dated as
of May 1, 2003, with the Licensor (the License Agreement). Pursuant to the
License Agreement, IVI Smart granted to BioSensor the exclusive right to
utilize certain of IVI Smarts patent pending biometric fingerprint sensor technology
to develop into a commercial sensor; and BioSensor granted to IVI Smart the
exclusive rights to any sensor developed, produced and manufactured by
BioSensor. In consideration for the licenses, IVI Smart agrees to pay a
royalty to BioSensor equal to $.35 for each Super Smart Card sold or
distributed by IVI Smart; and BioSensor issued 50,000,000 Common Units to IVI
Smart. No other Common Units were issued by Biosensor. Accordingly, Biosensor
is a wholly owned subsidiary of IVI Smart and an affiliate of the Registrant. Wayne Drizin, the co-inventor of our Super Smart Card technology and of
our BVS2 platform and associated applications, has been serving as a
consultant to us since our inception. In lieu of salary and other remuneration,
we have agreed to issue options to Mr. Drizin to purchase an aggregate of
31,425,000 shares of our common stock. On February 13, 2002, 31,425,000
options were granted at $.41 per share; and 6,925,000 were granted on December
1, 2003 at $1.00 per share. None of the options granted in 2003 will vest or
become exercisable until the 20th day after the Registrant files an Information
Statement with the SEC, complies with any and all comments raised by the SEC,
and mails the Information Statement to our stockholders. Accordingly, there
can be no assurance that any of the 2003 options will ever become exercisable. Pursuant to a Research and Development Services Agreement effective
January 1, 2001, and dated May 29, 2003 (the BBT Agreement), the Company
engaged Big Bang Technologies,
Inc., a California corporation controlled by and under common control of Tamio
Saito, a co-inventor of the Super Smart Card technology and the BVS2 platform
(BBT), as our research and development co-coordinator, administrator and
personnel provider. BBT was also engaged to provide us with state of the art
software development, testing, laboratory and other services related to our
smart card technology, and the services of Tamio Saito as our Chief Technology
Officer. The BBT Agreement, which provides for mutual confidentiality and
non-compete protection, is for a term of one year, and is thereafter
automatically renewed for successive one year terms unless sooner terminated in
accordance with its provisions. In consideration for 48
    Table of Contents  BBTs services, we
agreed to promptly pay monthly invoices submitted by BBT. During
the two fiscal years ended December 31, 2003, we paid BBT an
aggregate of $310,000 and $730,750, respectively, under the BBT Agreement. Pursuant to an Advisory and Administrative Services Agreement effective
January 1, 2001, and dated May 29, 2003 (the ABG Agreement), we engaged
Associated Business Group, Inc., a Nevada corporation controlled by the father
of Wayne Drizin, a co-inventor of our Super Smart Card technology and the
BVS2 platform (ABG), as the principal administrative services provider for
us. Pursuant to the ABG Agreement, we engaged ABG to administer the receipt of
investors funds, to pay expenses and to perform other necessary and related
administrative services. ABG also agreed to utilize its best efforts to and
has covered temporary shortfalls in our cash receipts. The ABG Agreement, which provides for mutual confidentiality and
non-compete protection, is for a term of one year, and is thereafter
automatically renewed for successive one year terms unless sooner terminated in
accordance with its provisions. In consideration for ABGs services, we
agreed to pay ABG a fee of $10,000 per month subject to ABGs right to convert
the same into restricted shares of our common stock at a conversion price equal
to 75% of the mean between the closing bid and asked prices for our common
stock on the day before the date ABG elects to convert. In December 2001, ABG
converted its $120,000 in accrued fees into an aggregate of 200,000 shares of
our common stock at $.60 per share. In December 2002, ABG converted its
$120,000 in accrued fees into an aggregate of 347,827 shares of our common
stock at $.345 per share. In December 2003, ABG converted its $120,000 in
accrued fees into an aggregate of 135,593 shares of our common stock at $.885
per share. On December 1, 2003, IVI and certain other holders comprising
approximately 77% of our issued and outstanding shares adopted resolutions by
consent pursuant to Section 78.320 of the Nevada Revised Statutes in lieu of a
meeting of our shareholders. The resolutions (i) re-elected a former director;
(ii) elected two new directors; (iii) granted to the board the power to select
independent auditors; (iv) increased the number of authorized shares of common
stock from 200 million to 300 million; (v) created the 2003 Long Term Incentive
Plan wherein 75 million shares are reserved for issuance; and (vi) granted 30
million options thereunder. The approved actions will become operative 20 days
after the mailing to our stockholders of an Information Statement that must
first be prepared and filed with the SEC. A total of 30 million five year
options were granted to our Chief Executive Officer, one of the inventors of
the Super Smart Card technology and certain employees. The options are
exercisable at a price equal to 100% of the closing bid price for our common
stock on December 1, 2003, or $1.00 per share. On November 15, 2003, we
entered into a written Compensation Settlement
Agreement with Mary A. Grace, our President, Chief Executive Officer and Chief Financial Officer.
Pursuant to the agreement, we agreed to pay Ms. Grace a salary of $250,000 per
year commencing on January 1, 2004. In consideration for Ms. Graces releasing
us from our obligation to accrue her former salary of $250,000 per year or
$750,000 net of $300,000 in expenses that we paid on Ms. Graces behalf for the
three years ending December 31, 2003, we agreed to pay to Ms. Grace a preferred
distribution of 50% of future profits limited to $450,000. In addition, and in
consideration for our return to Ms. Grace of certain of her marketable
securities, Ms. Grace released us from any prior obligations under a
contemplated agreement to purchase such securities. 49
    Table of Contents  ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K Exhibits: 3(i)
    
    Articles of Incorporation of Boppers Holdings, Inc., filed July 15, 1997, as amended August 11, 2000,
as further amended December 22, 2000.3(ii)
    
    Bylaws of e-Smart Technologies, Inc.10(a)
    
    Exclusive Use and Distribution Agreement, dated as of
October 26, 2001, by and between IVI Smart Technologies, Inc. &
e-Smart Technologies, Inc.10(b)
    
    Exclusive Use and Distribution Agreement, dated as of
September 1, 2000, between Intermarket Ventures, Inc. and e-Smart
Systems, Inc.10(c)
    
    Notice and Consent, dated as of January 1, 2001, to that
certain Exclusive Use and Distribution Agreement, dated as of
September 1, 2000, between Intermarket Ventures, Inc. and e-Smart
Systems, Inc.10(d)
    
    Exclusive Use and Distribution Agreement, dated as of
September 6, 2001, by and between IVI Smart Technologies, Inc. and
e-Smart Technologies, Inc.10(e)
    
        Exclusive Use and Distribution Agreement,
          dated August 27, 2000, by and between e-Smart Systems, Inc. and Newco
          (i.e., e-Smart City Card Co. Ltd., a Chinese JV company).10(f)
    
    Advisory and Occupancy Services Agreement, dated May 29,
2003, but retroactively effective to January 1, 2001, by and between
Associated Business Group, Inc. and e-Smart Technologies, Inc.10(g)
    
    Compensation Settlement and Employment Agreement, dated as
of November 15, 2003, by and between e-Smart Technologies, Inc. and
Mary A. Grace.10(h)
    
    Research and Development Services Agreement, dated as of
January 1, 2001, and reduced to writing on May 29, 2003, by and
between Big Bang Technologies, Inc and e-Smart Technologies, Inc.10(i)
    
    E-Smart Technologies, Inc. 2003 Long Term Incentive Plan
adopted December 1, 2003.10(j)
    
    Master Teaming Agreement, dated as of February 27, 2004, by and between
Samsung SDS Co., Ltd. and e-Smart Korea, Inc.10(k)
    
    Cooperation Agreement, dated February 27, 2004, by and among e-Smart
Technologies, Inc., Guo Xin Well-tel Technology Co., Ltd., and
EarthNetMedia Trading Corporation.10(l)
    
    Mutual Cooperation Agreement, dated February 25, 2004, by and between
Daewoo International Corporation and e-Smart Korea, Inc.31.1
    
    Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1
    
    Financial Statements.
 Reports on Form 8-K During the last quarter of the fiscal year ended December 31, 2003, we did
not file any reports on Form 8-K. 50
    Table of Contents  ITEM 14. PRINCIPLE ACCOUNTANT FEES AND SERVICES Audit Fees On November 30, 2003, we engaged Rosenberg Rich Baker Berman & Company
(RRBB) as our principal accountants to audit our annual financial statements
for the two fiscal years ended December 31, 2003. However, we did not pay any
fees to RRBB during the fiscal year ended December 31, 2003. Subsequent to
this date, we paid RRBB $3,189 and expect to incur $11,181 in additional fees
for professional services rendered in connection with this audit. Audit-Related Fees There were no fees billed to us in fiscal year 2003 for professional
services of RRBB for assurance and related services reasonably related to the
performance of audit or review of our financial statements and not reported in
the previous paragraph. Tax Fees There were no fees billed to us in fiscal year 2003 for professional
services of RRBB for tax compliance and related tax services. All Other Fees There were no fees billed to us in fiscal year 2003 for services rendered
by RRBB other than the services described in the previous three paragraphs. The engagement of RRBB to render audit or non-audit services requires the
prior approval of our Board of Directors since we do not yet have an audit
committee of our Board of Directors. 51
    Table of Contents  SIGNATURES In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated. Dated: March 30, 2004 e-Smart Technologies, Inc.By:
    
    /s/ Mary A. Grace   Mary
A. Grace, President,Chief Executive Officer, andChief Financial Officer
 Pursuant to the requirements of the Exchange Act, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated. By:
    
    /s/ Mary A. GraceMary A. Grace, Director
 Dated: March 30, 2004 By:
    
    /s/ Tamio SaitoTamio Saito, Director
 Dated: March 30, 2004 By:
    
    /s/ David C. WilliamsDavid C. Williams, Director
 Dated: March 30, 2004